Argentina’s president has much to shout about. But job worries loom
Photograph: Reuters
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The president of Argentina has had an excellent few months. So some gloating was to be expected in his formal state-of-the-nation speech at the opening of Congress on March 1st. It was also a chance to outline a statesmanlike vision and reach potential new allies. Instead, his success seems to have bred hubris and aggression. Despite promising last year to ease up on the insults, Javier Milei shouted at his Peronist rivals, who interrupted frequently, calling them “murderers and thieves”, “coup plotters” and “cavemen”. He revelled in it. “I love making you cry.”
This neatly captures the two faces of Mr Milei: his wise if tough liberalising reforms are often accompanied by angry, occasionally paranoid rhetoric—even when he is flying high. He has passed a swathe of legislation, the economy is growing and the central bank has at last begun accumulating foreign reserves, long demanded by investors. The main worry is whether the economy is generating enough good jobs.
Politically, the president has never been stronger. Despite not having a majority, his government managed to pass almost its entire legislative agenda for the recent extraordinary sessions of Congress. That included a budget, a reform to lower the age of criminal responsibility and a trade deal with Europe.
The biggest prize of the legislative bonanza was a major labour reform. Previous attempts at such change by non-Peronist governments left them traumatised, says Ignacio Labaqui of Medley Global Advisors, a research firm. Mr Milei’s success demonstrates his strength and his team’s growing ability to convene coalitions.
Argentina’s labour laws, which date to the 1970s, are so asphyxiating that more than 40% of Argentines work in the informal sector, dodging the law altogether. The government wants the reform to boost formal employment. The change makes it cheaper to fire people and creates clarity about severance costs. That should dampen the boom in lengthy lawsuits that leave companies unsure what they will owe if they sack someone. It will help on disputes over workplace injuries, too. According to a study by IERAL, a local think-tank, the country has roughly the same rate of workplace injuries as Spain, but they result in more than 12 times as many lawsuits.
The reform also empowers salary negotiations at the regional or company level, rather than making participants rely on national wage agreements. That should boost employment by allowing businesses to pay wages that more accurately reflect labour costs in their particular region, says Federico Sturzenegger, the minister of deregulation. Juan Grabois, a Peronist congressman, fumes that the law “takes us back 100 years”. Expect layoffs and lower salaries, he says.
Mr Milei is also tackling a critical and long-standing weakness: Argentina’s lack of foreign reserves. That has been a big worry for investors and the IMF, both of whom need to be paid back in dollars. Last year the government was forced to spend reserves to prop up the currency. In the first two months of this year, the central bank has purchased $2.7bn (see chart).
The government would like to tap global capital markets for dollars to help roll over Argentina’s enormous debts. Yet it appears irritated that the interest rates it would probably be charged have not fallen more than they already have. It has recently suggested sourly that for now it has cheaper options than global capital markets. Still, it will soon be wooing investors again at a glitzy event in New York dubbed “Argentina week”. So far, the high probable rates suggest markets are not fully convinced by the speed of reserve accumulation, nor by the exchange-rate regime.
Chart: The Economist
The band within which the peso partially floats has been widening more rapidly this year. In general, the currency has been strengthening. Mr Milei has long favoured a strong peso to help pull down inflation. Its strength is partly a reflection of the dollar’s global weakness. But it is also boosted by capital controls, which still restrict companies from taking dollars out of Argentina, and by tight monetary policy, which offers juicy returns in pesos. Despite urging from investors, the government appears in no hurry to float fully, fearing uncontrollable lurches. Meanwhile, local interest rates are both high and volatile. Blame that, in part, on the government’s poor communication of monetary policy. It is also a problem that Argentina targets the total money supply rather than interest rates, as happens in most rich countries.
All this weighs on businesses, for which a strong peso means pricier exports and high, volatile rates mean headaches. But that is a cost Mr Milei mostly seems willing to pay. Yanking inflation down is his signature achievement, and he is unlikely to change course. Since a monthly-inflation low of 1.5% in May last year it has been steadily creeping back up, stirred by economic recovery. In January it was 2.9% monthly—some 32% annually.
The government rightly highlights solid growth. After shrinking in 2024, last year GDP grew by 4.4%. This year, the forecast is 4%. Yet recovery is uneven. Mr Milei has opened up the economy by slashing red tape at customs and by trimming tariffs. Output from industry, flabby after years of lavish protection, is still lower than when Mr Milei took office in December 2023. Output in other parts of the economy, including agriculture and the oil sector, has surged. But they are not as labour-intensive as industry (see chart). Economic recovery has in fact happened with lower levels of salaried formal employment. The labour reform will not quickly fix this, warns Martin Rapetti of Equilibra, a consultancy.
Nevertheless, at 6.6% unemployment is only a percentage point above what it was before Mr Milei took office. Many are clearly finding some kind of work. Filings under a tax scheme for small contractors with low incomes have grown sharply. Many fear, however, that all this amounts to well-paid jobs being replaced by low-paying contract work or informal labour.
Loves labour lost
Broadly the voters who so resoundingly backed Mr Milei in the midterms in October are still with him. Though his approval ratings have softened, they are above those of the past two presidents at this point in their terms. But there are signs of discontent. A general strike failed to stop the reforms, though unions may use legal challenges to tie them up in court. As much as middle Argentina likes lower inflation, many do not care for Mr Milei’s aggressive language, which could become a vulnerability if economic news darkens. And voters’ priorities are shifting. Polling shows that unemployment now consistently beats inflation as the biggest concern.
I would like to lodge a formal labour complaint Photograph: Silvana Safenreiter/ZUMA Press Wire/Eyevine
The government downplays all of these worries. Liberalisation is already offering Argentines cheaper goods. In time opening up the economy should also result in more-competitive businesses. Mr Sturzenegger claims that, because industry is mostly in the capital city and agriculture and oil are in the regions, “you’re going to have a kind of an exodus from the greater Buenos Aires area towards the interior.” If that happens, the shift may be painful.
Mr Milei remains bullish. “New industries will more than compensate for the demand for labour lost by the old industries, and with much better wages,” he claimed in his speech. His political future may turn on how quickly that happens. ■
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