(Bloomberg) -- To say that life hasn’t been easy in Argentina since Javier Milei won the presidency would be to downplay the everyday reality of a nation undergoing the equivalent of economic surgery.
In the eight months since he took office, prices have soared more than 100%, consumer spending tanked and unemployment climbed as Argentines have been submitted to the most brutal austerity shock in recent history.
Yet something unexpected has happened on Milei’s watch: For all the ongoing misery, he remains just as popular as when he stormed to power pledging to take a chainsaw to the state. Even the hardest hit continue to swear by his bitter economic medicine.
Among them is Monica Perez, a 57-year-old butcher shop owner whose smile belies the fact the world’s onetime red-meat capital has seen beef consumption sink to the lowest in more than a century. Where construction workers who make up the bulk of her customers once ordered beef cuts by the kilogram, now they tell her how much money they have to spend and buy whatever that yields.
That’s indicative of a longer-term downward spiral as purchasing power plummeted under the previous left-wing government. It’s a trend that has accelerated under Milei. Perez, though, isn’t giving up on him yet.
“Of course I have hope,” she says at her shop in the neighborhood of La Union, an hour south of the city of Buenos Aires. “Things have to change. Things will change, for the better.”
Argentina is in the early stages of an economic and monetary experiment that will determine whether it can escape decades of decline and recapture some of its earlier swagger as a commodities superpower. Everywhere you look there are signs of decay, and the accompanying strains on its people.
More than half of Argentines now live below the poverty line as Milei’s “shock therapy” exacerbates the already staggering levels of destitution that he inherited.
Since assuming office in December, the libertarian president cut real pensions and public wages, halted nearly all public infrastructure projects, devalued the peso by more than 50% and did away with price controls on everything from milk to mobile phone bills.
As spending is slashed by the most in 30 years, homelessness is on the rise. Entire families have become mainstays outside supermarkets, begging for a bag of rice or pasta, and often ringing doorbells along the streets of the capital asking for used clothes.
Voters surveying the wreckage still accord the president a high degree of loyalty.
Milei’s popularity stands at a healthy 52%, a 1 percentage point bump from February, according to polling firm Management & Fit. His immediate predecessor, Alberto Fernandez, racked up a disapproval rating of 79% by the end of his term, and is now fighting allegations of domestic abuse that risk compounding the now-opposition’s woes.
Cooling inflation — Milei’s central rallying cry — is one leg propping up his support. Monthly price increases fell from a three-decade high of 25.5% in December to 4% in July.
Residual anger at Peronism, the statist movement that’s governed Argentina for 16 of the last 20 years, most recently under Fernandez, helps explain the rest.
Perez, whose butcher shop sits on the corner of an unpaved road which has no access to a public sewage system, laments the decades of state largess with little to show for it beyond a litany of dismal statistics. “The majority of us are exhausted,” she said.
“That’s why we voted for him,” she added of Milei. “And why he won.”
Argentine leaders have long faced a tightrope walk between economic imperative and political expedience.
It’s a feat that traditionally involves a balance between fixing the economy’s many puzzles that require short-term pain while limiting the political costs and keeping the streets calm, according to Camila Perochena, a historian at Universidad Torcuato Di Tella in Buenos Aires. Milei threw that model out the window with a whatever-it-takes style that upended politics and shields his approval ratings, for now, from labor strikes and other habitual setbacks.
The result is “an unprecedented moment” under the country’s first economist president. Milei, she said, “has a conviction that he has to prioritize macroeconomic balance without considering the social cost or even the political costs that austerity measures will have.”
To be sure, Milei has tapped the brakes on shock therapy in recent months to keep inflation in check and protect the middle class, as he believes that forms the backbone of his administration, according to one of his top advisers, who asked not to be named discussing the president’s strategy. In July, Milei halted the removal of energy subsidies that had most households footing only 5% of the electricity cost; with inflation in check, the Economy Ministry restarted hiking prices in August.
Since a 54% devaluation in December, the government has rejected calls to speed up its 2% monthly depreciation of the official peso rate — or strip capital controls altogether — because they fear such a move would only juice prices more. To keep the parallel peso closer in line with the official rate, the government is intervening in the FX market, eating into the international reserves dutifully built up in the first months of austerity, rattling Wall Street in the process. Keeping the currency straitjacket in place only further postpones a recovery, most analysts estimate, fanning an already deep recession forecast to shrink the economy 3.7% this year.
So far, the self-styled anti-politician has proven more politically savvy than many anticipated. In June, Milei managed to muscle through the opposition-controlled congress a slew of economic reforms that remake labor laws, incentivize large foreign investments and even hike income taxes. He did so through relentless negotiations and cabinet changes, in spite of repeatedly referring to the legislative body as a rat’s nest. His more radical plans, like dollarizing the economy, sit on the back burner for now.
To untangle the edifice of capital controls put in place by his predecessors, revive activity and return to capital markets, Milei is pinning his hopes on a sizable loan from the International Monetary Fund — which Argentina already owes $44 billion. Yet the government’s currency intervention to keep inflation low flies in the face of the orthodox policy measures prescribed by the Washington-based lender, and the board needs convincing its biggest creditor deserves its 23rd chance. Milei still believes a new program could come as soon as this year.
Ultimately, it’s his ability to stabilize and reactivate the economy upon which he will be judged, according to Perochena, the historian.
Juan Pablo Rudoni is a case in point. His 300-employee modular construction company EcoSan suffered a 40% plunge in sales in the first half of the year, driven by Milei’s decision to cut public works spending that’s rippled across Argentina’s construction sector, one of the largest by employment. EcoSan boomed during the pandemic years by building modular hospitals and continues building housing or offices for industries like mining, oil and gas.
But Rudoni can’t deliver the last project Milei’s predecessors contracted: Two-story apartments and job-training offices destined for city slums. They’re practically finished, sitting idle in EcoSan’s cavernous factory outside Buenos Aires city. But Milei hasn’t even appointed an official to sign certificates that Rudoni needs to get paid and deliver. Meantime, his company’s utility bills have soared between 500% to 600% this year as Milei gradually withdraws subsidies that kept prices at absurdly low levels.
For all that, Rudoni backs Milei’s ambition to make Argentina a pro-business haven, and is willing to bite the bullet on utility bills. But he believes the austerity went too far, too fast. What’s more, Rudoni is opening a new factory later this year that he financed years ago, not anticipating the historic downturn.
He’s giving it until around the end of the year for the economy to pick up. Otherwise, he says, “it’ll be unsustainable for us to be able to keep our personnel and structure.”
“We need to see a light at the end of the tunnel,” added Rudoni. “But the issue is that light doesn’t seem within reach.”
Argentines didn’t turn to Milei blindly, of course. The country has spent more time in recession since the 1950s than any other nation, according to a World Bank report this year. An Argentine born when the country returned to democracy in 1983 has already lived through hyperinflation, record unemployment, sovereign defaults, multiple peso devaluations and several invented currencies that no longer exist. Much of that time has been spent in recession.
More recently, average incomes for white-collar payroll employees have plunged from $1,500 in 2017 to less than $500 last year, before ticking up on Milei’s watch, according to data compiled by Buenos Aires-based consulting firm EconViews.
The president acknowledges the pain and maintains that the “massive effort” being made by Argentines will pay off.
In any case, he’s not offering an alternative.
“Everything that can be cut, we will cut,” he said in a July 19 radio interview. “The chainsaw never stops.”
--With assistance from Stephen Wicary.
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