Argentina's Milei: Chainsaw Cuts Deepen in 2025

As Argentina's President Javier Milei continues his mission to stabilize the country's economy, his "chainsaw" cuts, or significant reductions in budgetary allocations, are set to deepen in 2025. The aim is to achieve a zero fiscal deficit and eliminate monetary issuance, a goal that has been met with mixed reactions from the public and the international community. This article explores the potential challenges and opportunities associated with these cuts and the role of the international community, particularly the IMF, in supporting Argentina's economic reforms.



The "chainsaw" cuts, implemented by the Milei administration, have led to a reduction in public works, economic subsidies, and transfers to provinces. While these measures have contributed to a fiscal surplus and primary surplus in the first eight months of 2024, they have also resulted in job losses and reduced public services, fueling social unrest and political opposition. To mitigate these risks, the government must engage in open dialogue with affected communities and political stakeholders, implement targeted social safety nets, and gradually phase in the cuts to allow for adaptation and minimize immediate impacts.

The reduction in government spending can also lead to a decrease in aggregate demand, contributing to an economic slowdown or even a recession. To counter this risk, the government should encourage private investment through incentives and reforms, such as the RIGI regime, implement countercyclical fiscal policies, and promote exports and international trade to boost economic activity.

In addition to the "chainsaw" cuts, the Milei administration has proposed deregulation and privatization measures, such as the Ley Bases, which aim to boost economic growth and improve the country's fiscal balance. These measures include the privatization of state-owned entities, incentives for large investments, and market liberalization. While these reforms can attract foreign and domestic investment, foster economic growth, and increase tax revenues, they also pose potential challenges and risks, such as increased poverty and inequality, limited fiscal space for future crises, and potential loss of political support.

The international community, particularly the IMF, has been closely monitoring Argentina's economic reforms under President Javier Milei. The IMF has already disbursed over USD 40 billion under the existing financial program, with over USD 5 billion provided this year, reflecting the IMF's support for Milei's commitment to fiscal discipline and structural reforms. The IMF's response to Argentina's deregulation and privatization efforts is likely to be positive, as these measures align with the IMF's recommendations for promoting economic growth and stability.

In addition to providing financial support, the IMF is likely to play a crucial role in supporting Argentina's economic reforms by offering technical assistance and policy advice. The IMF can help Argentina design and implement effective policies to address challenges such as poverty and inequality, which have been exacerbated by the economic crisis and the government's austerity measures. The IMF may also provide guidance on managing the transition to a more market-oriented economy, including the potential social and political challenges that may arise.

In conclusion, Argentina's "chainsaw" cuts and deregulation measures pose both challenges and opportunities for the country's economic recovery. To ensure sustainability, the government must address these risks proactively and implement complementary policies to mitigate their impacts. The international community, particularly the IMF, is likely to support Argentina's economic reforms through financial assistance, technical assistance, and policy advice, contributing to the country's economic recovery and long-term growth.