Chainsaw policies are working: No new debt until 2027? The incredible economic miracle of Argentina's President Milei

Germany's debt crisis vs. Argentina's surplus: What we can learn from Javier Milei

Radical cure with the chainsaw: The painful but successful way out of hyperinflation

With a chainsaw as its symbol and an unprecedentedly radical austerity program, Javier Milei took office at the end of 2023 to save crisis-ridden Argentina from economic collapse. Two and a half years later, the international financial world is rubbing its eyes in astonishment: billions in loans are being serviced on time, the devastating hyperinflation has been broken, and after a painful historic poverty shock, key social indicators are beginning to stabilize. The South American country's uncompromising shock therapy has become so prominent that it is even being used as a benchmark for economic policy reform debates in Germany. But is Argentina's economic turnaround truly a sustainable miracle, suitable as a global model? Or is the country buying itself this current respite with a risky overvaluation of its currency and heading towards a social crisis that could escalate, at the latest, with the gigantic mountain of debt in 2027? A thorough assessment of an unprecedented economic experiment.

Argentina's economic transformation under Milei: Between liberation and social turmoil

A country pays off its debts – and the world watches

Argentina prepared and paid a $4.3 billion payment due on its foreign-currency government bonds in July 2026. Economy Minister Luis Caputo stated that the government had already secured the necessary funds and identified additional sources of financing to meet future obligations during President Javier Milei's term. Specifically, the $4.3 billion covered interest and principal payments on foreign bonds, with the Ministry of Finance already holding approximately $4 billion in deposits for this payment. Also noteworthy is the announcement that the country intends to avoid issuing any new bonds on international capital markets by the end of 2027. Instead, Buenos Aires is relying on domestically placed, dollar-based bonds, multilateral loans, and other financing instruments with lower interest rates, which have already raised approximately $4 billion since March, with another $2 billion expected by the end of the year. This news is more than just a technical footnote to bond policy. It is a symbol of an economic policy reversal that has shaped the political debate far beyond South America since the end of 2023 and is now even used in Germany as a benchmark for its own reform debate.

From national bankruptcy to payment discipline

To understand the significance of this payment, one must consider the starting point when Javier Milei took office in December 2023. At that time, Argentina had the world's highest inflation rate at 211 percent, chronic budget deficits, an overvalued peso, multiple parallel exchange rates, and a decades-long culture of public debt that had repeatedly brought the country to the brink of default. In his very first full year in office, the government achieved a historic break with this tradition. For the first time since 2010, Argentina closed 2024 with a national budget surplus, with additional revenue amounting to the equivalent of €1.6 billion, or 0.3 percent of the gross domestic product. This turnaround was achieved through drastic cuts in public works projects, transfer payments to the provinces, subsidies, and pensions. Economy Minister Caputo publicly described the result as a milestone in the country's history. On a primary basis, that is, before interest payments, the surplus in 2024 even amounted to 1.8 percent of gross domestic product. Argentina had last experienced such fiscal discipline during the commodity boom of the 2000s.

The chainsaw as a symbol and method

Milei himself never concealed his government program, but rather promoted it from the outset using a chainsaw as a political symbol. This imagery represents the uncompromising reduction of the state apparatus: ministries were merged, entire agencies abolished, subsidies cut, and some 56,000 civil servants were laid off, a significant portion of whom had only been hired shortly before the change of government as a concession to loyal party cadres. This radical approach initially had painful consequences for large segments of the population. In the first half of 2024, the poverty rate rose to 52.9 percent, the highest level since the 2001 financial crisis, compared to 41.7 percent in the same period of the previous year. The proportion of people living in extreme poverty nearly doubled from 11.9 to 18.1 percent. This development was visible on the streets of Buenos Aires: people begged in front of grocery stores, rummaged through garbage containers, and rang doorbells to buy used clothing. The OECD even predicted a four percent decline in economic output for 2024, the worst figure among all G20 countries. These figures illustrate that Argentina's much-vaunted liberation was by no means painless, but rather triggered a deep social crisis in its initial phase.

Inflation is falling, but not yet at zero

The key indicator of the Milei government's success is the development of inflation. From a peak of 289 percent in April 2024, the annual inflation rate fell significantly, although at around 118 percent at the end of 2024 it still remained at a historically high level. The disinflationary process continued thereafter. Two years after taking office, according to the Friedrich Naumann Foundation, the annual inflation rate stood at around 31 percent in December 2025, the lowest level since 2018, with forecasts for 2026 predicting an average of around 20 percent. However, the actual development in the first half of 2026 proved more contradictory than hoped. In May 2026, Argentina's National Institute of Statistics and Economic Studies (INDEC) reported a monthly price increase of 2.1 percent, the lowest monthly figure in eight months. At the same time, the annualized inflation rate rose slightly to 33.2 percent because the extremely low baseline from May 2025 was no longer included in the calculation. Particularly noticeable were the price increases for communication services (3.4 percent), education, and food (2.5 percent). The cost of living in Buenos Aires had now reached a level comparable to European capitals, while real wage growth had not kept pace. More recent reports from April 2026 indicate inflation of 33 percent, coupled with economic growth of just under four percent. The 2026 budget projects economic growth of five percent, with a target inflation rate of 10.1 percent and a primary budget surplus of 1.2 percent of GDP. Whether this ambitious goal is achievable remains an open question in light of recent developments.

Poverty figures: a mix of success stories and doubt

The development of the poverty rate presents perhaps the most contradictory picture of the entire reform record. After the dramatic increase in 2024, the trend reversed significantly over the course of 2025. According to the state statistics agency INDEC, the poverty rate stood at 28.2 percent in the second half of 2025, compared to 38.1 percent a year earlier, representing the lowest level in seven years. Around 13 million people continue to live below the poverty line, while the proportion of people living in extreme poverty fell to 6.3 percent, a decrease of 1.9 percentage points compared to the previous year. Experts attribute this decline primarily to lower inflation, which mitigated the real loss of purchasing power for the population. According to independent surveys by the Catholic University of Argentina, the poverty rate, at 36 percent, was slightly higher than the official INDEC statistics, but still marked its lowest level since 2018. Particularly noteworthy is the development of child poverty, which fell from 62.9 percent to 53.6 percent, while according to UNICEF, around 1.7 million children were able to escape poverty. This was achieved, among other things, through targeted financial support for large families, which the Milei government even expanded compared to its predecessor, coupled with the principle of focused aid for those truly in need rather than a broad but inefficient subsidy policy for everyone. Critics, however, point out that this improvement should not be mistaken for a sustainable structural recovery, but primarily represents a correction of the self-inflicted collapse of 2024.

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Critical dissenting voices and the question of sustainability

Not all observers share the euphoric assessment of the reform record. Critical economic publications from a Keynesian perspective point out that two years after Milei's inauguration, the European media coverage, which had celebrated the president euphorically at his election, has fallen noticeably silent because the promised long-term improvements have not materialized to the hoped-for extent. Among the central criticisms is that the official zero deficit was partly achieved through a so-called overvaluation of the peso and increasing foreign debt, which could diminish the substance of the economic upswing and the reduction in poverty. While even critical commentators do not dispute that the figures published by INDEC regarding the decline in poverty to 38.1 percent in the second half of 2024 are formally correct, they point out that the poverty rate had previously risen to its highest level in a long time, and the starting point for the comparison was correspondingly low. The International Monetary Fund nevertheless supported Milei with growth forecasts of at least five percent for 2025 and 2026, and with growth forecasts of 4.5 percent for 2026, the highest rate in Latin America. The planned labor market reform, which includes changes to job security, severance pay, and the right to strike, is also facing considerable public resistance, with unions already announcing widespread protests.

Political backing despite hardships

Despite the harsh social costs of his reform policies, Milei enjoys a remarkably stable political base. In the October 2025 congressional elections, his party, La Libertad Avanza, garnered 41 percent of the vote, significantly ahead of the Peronist Fuerza Patria, which received 32 percent. This meant that, for the first time since 1989, the Peronists no longer held the largest faction in parliament. With 95 seats, Milei's party now holds the most seats in the National Assembly. Polls conducted by the Opina Argentina polling institute in December 2025 showed that 49 percent of the population viewed Milei favorably, making him by far the most popular politician in the country. However, this approval rating had not grown linearly. By the end of 2024, impatience had already spread among the population, hundreds of thousands took to the streets to protest the austerity policies, and in September 2025 Milei suffered a significant defeat in the regional elections in the province of Buenos Aires, which was seen as a rebuke for the corruption allegations in the president's inner circle, including his sister and chief advisor Karina Milei, that had been dealt with too hesitantly.

Investments, raw materials and geopolitical opening

In addition to fiscal consolidation, the Milei government is consistently pursuing market deregulation and opening up to foreign capital. Under the leadership of Deregulation Minister Federico Sturzenegger, regulations in areas such as the housing market and air transport have been reduced, and tariffs and price controls on imported goods have been lowered. Through the so-called RIGI program, the government promotes large foreign investments of US$200 million or more by offering tax, customs, and regulatory relief over a 30-year period. In the mining sector alone, which possesses significant lithium and copper reserves, investment commitments totaling US$31 billion have been registered to date. This development is complemented by investment projects in the energy sector, ranging from renewable energies to natural gas and oil, including the planned expansion of nuclear power, as well as by a recently agreed cooperation between Argentine and German companies for the supply of liquefied natural gas to Germany. Argentina is also to be developed into a location for artificial intelligence with the help of foreign investment, favored by low energy costs, lean regulation and the high affinity for technology among the population.

The long-term debt mountain as a litmus test

The timely repayment of the $4.3 billion in July 2026 should not obscure the significantly greater challenges that lie ahead in the coming years. Argentina had already made a comparable payment of $4.3 billion to bondholders in January 2025, the largest repayment since the 2020 debt restructuring, of which $3.7 billion went to private creditors and the remainder to public institutions. These funds came directly from the budget surplus generated at that time. It was already pointed out then that this repayment merely marked the beginning of a considerably more demanding debt repayment plan, as similar amounts would be due every six months until the end of Milei's term in 2027. According to government figures, debt service of approximately US$25 billion is due in 2027. This is to be covered by a combination of further domestic bond issuance, central bank foreign exchange purchases, disbursements from the International Monetary Fund, privatization proceeds, and remaining budget surpluses. Economy Minister Caputo emphasized that issuing bonds abroad is not currently a firm goal, but merely an option, demonstrating the government's strong desire to avoid the appearance of renewed dependence on international capital markets. This strategy is ambitious because it presupposes that the domestic economy can provide sufficient capital for dollar-based bonds and that the central bank has adequate foreign exchange reserves to intervene if necessary.

Germany in contrast: Two fiscal paths

The comparison with Germany, as also addressed in an analysis by Xpert.Digital, highlights the fundamental difference between the two economic policy approaches. While Argentina is operating with a radical, painful short-term consolidation strategy, Germany is experiencing stagnant growth amidst rising national debt and a government spending ratio exceeding 50 percent. In this context, Germany's special reserve fund of 500 billion euros is interpreted as a de facto weakening of the once staunchly defended debt brake. The comparison reveals two fundamentally different fiscal philosophies: short-term, concentrated pain through radical cuts versus a long-term, gradual accumulation of debt without immediate signs of crisis. Both models carry their own risks, and the central question of which fiscal risk is more serious in the long run—radical cuts or steady debt growth—ultimately remains open, even though Argentina can now point to data-driven successes whose sustainability and precise measurement accuracy continue to be the subject of controversial debate.

A model with limitations, not an export item

Anyone who tries to derive a general formula for other countries from the Argentine experience underestimates the specific historical and institutional conditions under which Milei operates. Argentina came from such an extreme starting point—triple-digit inflation and decades of fiscal mismanagement—that even drastic cuts, which would be politically and socially difficult to implement in more stable economies, met with an exhausted, reform-minded population. Milei's approval ratings, which remained stable despite a historic poverty shock in 2024 and even consolidated in the 2025 congressional elections, show that a significant portion of Argentine society accepted the short-term hardships as the necessary price for ending chronic instability. This societal willingness to tolerate hardship cannot simply be transferred to countries like Germany, where the economic starting point, despite structural problems with stagnant growth and increasing public debt, is considerably more stable, and where there is historically no societal consensus for radical cuts.

Conclusion of a contradictory assessment

After two and a half years, Argentina's economic policy under Javier Milei presents a picture that defies easy categorization as either a pure success story or a complete failure. On the success side are the first budget surplus in over a decade, a drastically reduced, albeit still high, inflation rate, a significantly lower poverty rate compared to the crisis year of 2024, and the timely servicing of substantial foreign debt without resorting to new international loans. On the cost side are the historic poverty shock of 2024, persistently high living costs, fragile inflation dynamics, social protests against planned labor market reforms, and corruption allegations within the president's inner circle. Argentina's decisive test still lies ahead, when debt payments of approximately US$25 billion are due in 2027. This will reveal whether the fiscal successes achieved so far rest on a stable foundation or whether, as critics suspect, they have been partially bought at the price of an overvalued currency and growing foreign debt. For Germany and other European economies, the Argentinian case provides valuable food for thought on the consolidation capacity of state budgets, but not a directly transferable blueprint, since the structural, historical and social starting conditions of both countries are fundamentally different.

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