The economist Simon Kuznets once observed that ‘there are four kinds of countries in the world: developed countries, underdeveloped countries, Japan, and Argentina’. The remark, made decades ago, has lost none of its sting.
When renowned economist Javier Milei won Argentina’s presidency in late 2023, he came armed with a chainsaw. Not a literal one, though he had famously wielded one on the campaign trail. The chainsaw was a metaphor for what he promised to do to the Argentine state: cut it down, fast and without mercy.
Nearly two-and-a-half years into his presidency, that chainsaw has done real damage to government spending. Whether the cuts have healed the patient or simply reduced the bleeding while leaving deeper wounds untreated is the central question facing Argentina today.
The honest answer is, both things are happening at once. At the national accounts level, Argentina looks better than it has in years. Investors are calmer. The currency has stabilised. The government is, for the first time in almost two decades, spending less than it earns. But zoom in from that altitude, and a different picture emerges.
Factories are running at half capacity. Small businesses are filing for bankruptcy at record rates. Ordinary Argentines are putting groceries on credit cards because their wages have not kept pace with prices. The country is experiencing a split reality, and understanding that split is essential to understanding where Argentina goes from here.
The Surplus and What It Cost
For most of its modern history, Argentina spent more than it collected in taxes. The gap was filled by printing money, which fed inflation, which eroded savings, which triggered crises. The most devastating of these came in 2001, when a rigid currency peg to the US dollar, years of fiscal deficits, and a mountain of foreign debt combined to produce the largest sovereign default in history at the time.
Banks froze deposits overnight. Five presidents came and went within two weeks. The economy contracted by nearly 11 per cent. Recovery came slowly, driven largely by a commodity boom and debt restructuring, but the institutional scars ran deep. Milei’s government decided that ending this cycle required fiscal discipline above all else, which meant that the government must not spend more than it earns.
By that measure, the policy has worked. In the first four months of 2026, Argentina ran a primary fiscal surplus equivalent to roughly 0.5 per cent of GDP. Including interest costs, the country still managed a positive financial balance of around 0.2 per cent of GDP. April 2026 marked the fourth consecutive monthly surplus of the year.
Before Milei took office, Argentina had not managed a full-year financial surplus since 2008.
These numbers came primarily from cutting spending rather than raising taxes. In fact, tax revenues have been falling in real terms for months. The government eliminated 211 public programmes across various ministries, saving roughly two billion US dollars. Public sector wages were cut in real terms. Subsidies were slashed. Infrastructure investment was curtailed. The state was made smaller, fast.
The outside world noticed. Argentina’s sovereign risk premium, which measures how much extra interest investors demand to hold Argentine debt, fell below 500 basis points for the first time since 2018, and has held roughly there since. The IMF completed its second review of a 21 billion dollar lending arrangement in May 2026, releasing a further billion dollars, and bringing total disbursements to nearly 16 billion dollars.
Restoring credibility in international markets is a genuine achievement, and a lower risk premium eventually means lower borrowing costs for businesses and households alike.
The Factory Floor is Dark
The problem is that the path to fiscal balance has run straight through the country’s productive economy, and the damage there is severe.
Argentina’s industrial sector has been contracting for over a year. The Argentine Industrial Union tracks factory performance through a monthly index where a score above 50 signals expansion, and below 50 signals contraction.
In January 2026, that index stood at 36.5 points, its fifteenth consecutive month below the neutral threshold. Industrial capacity utilisation fell to 53.8 per cent by the end of 2025, down from 65.6 per cent two years earlier. In the automotive sector, factories are running at just 31.2 per cent of capacity. In textiles, rubber, and plastics, conditions are at historical lows.
What does this look like in practice? Machines sit idle. Workers are sent home early. Shifts are cut. Companies that cannot pay their bills enter legal proceedings to restructure their debts before going bust entirely.
Filings for concurso preventivo, the Argentine legal process allowing a struggling company to restructure before formally going bankrupt, have risen by more than 130 per cent compared to the same period last year, now exceeding the levels recorded during the worst months of the Covid-19 pandemic.
Daniel Rosato, President of Industriales Pymes Argentinos, did not mince words while describing what his organisation is witnessing on the ground, “We had warned that this year we were going to arrive at the closure of more than 1,000 SMEs, but the rhythm we see in the degradation of the local economy and the presentations of concursos preventivos demonstrates that the damage to the productive framework is much worse. There is no time to debate ideologies, only to save companies and their workers, who are the ones harmed by so much inaction.”
Industry associations have petitioned Congress for emergency support through temporary freezes on debt enforcement, tax payment deferrals, and extended restructuring timelines. Without intervention, they warn, the wave of factory closures will accelerate.
The asymmetry between large and small firms is significant. Large and medium-size companies are suffering, but they have access to lawyers, financial advisors, and bank relationships that help them manage the crisis. Micro and small enterprises, which form the backbone of Argentine manufacturing and retail employment, have almost none of those buffers. Their production and sales figures are deteriorating nearly twice as fast as those of larger competitors.
The Credit Card Kitchen Table
The industrial downturn has a human face, and it sits at the kitchen table.
Argentine wages have fallen by 20 per cent in real terms since 2018, the steepest drop of any country in Latin America over that period. By comparison, Mexican workers saw real wages rise by more than 22 per cent over the same period. The Latin American average was a modest gain of 2 per cent.
Under Milei, public sector workers have seen their real wages fall by more than 17 per cent since the administration took office. Private sector workers have fared somewhat better, losing around 1.5 per cent in real terms. For households already stretched by years of wage erosion, even small additional losses are deeply felt.
The response has been to borrow. Credit card debt has doubled relative to historical averages, with delinquency rates at their highest in more than 20 years. What makes this particularly troubling is not the amount of debt itself but what it is being used for. Credit cards in Argentina were once primarily used to buy televisions or refrigerators. Now, an estimated 75 to 80 per cent of households are using credit to buy basic food. Around 60 per cent are using debt to pay electricity and gas bills. Nearly half are borrowing to cover basic healthcare. This is not consumer finance. This is survival on credit.
Retail sales confirm the picture. Real retail volumes fell by 13.3 per cent in March 2026 compared to the same month a year earlier. Nominal sales grew slightly, purely because prices are still rising, but the actual volume of goods purchased is shrinking steadily across nearly every category.
The Feedback Problem
Here the story gets structurally complicated, because the collapse in domestic activity is now threatening the very fiscal programme it was meant to support.
Argentina’s tax system is heavily dependent on domestic economic activity. When factories produce less and people buy less, those tax bases shrink. In April 2026, national tax revenues fell by around 4 per cent in real terms compared to April 2025, the ninth consecutive month of real decline.
Independent analysts estimate that roughly 97 per cent of this fall is due to depressed domestic activity, not deliberate tax cuts. Export duties on beef and grains, cut in July 2025, compounded the shortfall, with receipts from those levies falling by more than 34 per cent in real terms in April 2026.
The government’s response to falling revenues has been to cut spending further. But each additional round of spending cuts reduces economic activity, which reduces tax revenues, which requires further spending cuts.
This self-reinforcing spiral is not unique to Argentina. Many countries that pursued aggressive austerity during debt crises, including Greece in the early 2010s, found themselves trapped in precisely this loop. Argentina is living that lesson in real time.
Where the Money Goes
When Milei launched Phase 3 of his economic programme in early 2025, it liberalised the foreign exchange market significantly, removing restrictions on companies paying dividends to foreign shareholders.
Before the liberalisation, foreign companies were remitting an average of about 24 million dollars per month in profits. By early 2026, that figure had risen to an average of 333 million dollars per month, peaking at 882 million dollars in March 2026.
Between December 2023 and early 2026, Argentina generated a trade surplus of 47 billion dollars, and received foreign financing of 46 billion dollars. Yet, net international reserves rose by only about 14.7 billion dollars. The remainder was absorbed by private capital flight, debt interest payments, and profit remittances.
To attract and retain capital, the central bank must maintain high domestic interest rates, but those same rates raise borrowing costs for businesses and households, depressing the activity needed to generate tax revenues.
The Mining Future
To compensate for the contraction in domestic industry, the administration is betting on large-scale resource extraction. The Large Investment Incentive Regime, known as RIGI, offers substantial tax advantages to investors committing more than 200 million dollars. By early 2026, over 27 projects had been submitted, representing commitments exceeding 30 billion dollars, including Rio Tinto’s 2.5 billion dollar lithium project in Salta, and a 15 billion dollar copper joint venture between BHP and Lundin Mining in San Juan.
A bilateral trade agreement signed with the United States in February 2026 embeds RIGI as the primary channel for American investment in Argentine critical minerals. Over a 100 explicit legal obligations in the agreement bind Argentina to specific actions, including accepting American technical standards and modifying environmental and agricultural laws.
American commitments are largely aspirational rather than binding. Whether this arrangement allows Argentina to process raw minerals domestically rather than export them unprocessed remains a serious open question.
The Poverty Numbers and Their Limits
In March 2026, Argentina’s official statistics agency announced that the national poverty rate had fallen to 28.2 per cent in the second half of 2025, down from a peak of 52.9 per cent in the first half of 2024. Independent researchers have urged caution. The official measure does not reflect sharp rises in deregulated energy and healthcare costs, treats credit-financed consumption the same as wage-financed consumption, and conceals the fact that quarterly data shows poverty rising back to 32.5 per cent in the final three months of 2025.
Community kitchens receiving public food supplies were cut from roughly 4,000 to 5,000 annually, down to 1,552 by mid-2025, worsening real food insecurity without affecting the monetary statistics. The Catholic University’s Social Debt Observatory estimates that 53.6 per cent of Argentine children live in poverty, with 28.8 per cent experiencing food insecurity.
The Question Ahead
Argentina in mid-2026 is a country in genuine tension with itself. The macro numbers are better than they have been in years. The micro reality, for millions of households and hundreds of thousands of small businesses, is one of sustained hardship.
Juan Pablo Filippini, an economist and PhD candidate in finance at IESE Business School, captures the distinction precisely, “Progress is not the victory lap. Argentina’s reserves are rising, sovereign risk is falling, and fiscal discipline is returning. But recovery is not measured by headlines alone. The real test is durability: stronger institutions, sustained reserve accumulation, tax compliance, and employment that catches up with growth.”
The administration has demonstrated that fiscal discipline is achievable even in a country with Argentina’s turbulent history. What it has not yet demonstrated is that fiscal discipline alone can generate the broad-based recovery that would make the hardship sustainable rather than indefinite. The path forward runs through targeted relief for small and medium businesses, a credible rebuilding of household purchasing power, and a strategy for converting booming mining revenues into domestic jobs and industrial capacity rather than profits remitted abroad.
However there is hope.
Javier Milei, said in his inaugural address at Buenos Aires on December 10, 2023, stated: “It will not be easy. One hundred years of failure cannot be undone in one day, but one day begins, and today is that day.”
Many Argentinians are clinging to this hope that the austerity measures will revive their economy to the golden age of early 20th century, when Argentina rivalled the United States of America as an economic powerhouse.