How have Argentina's recent economic policies impacted inflation and debt sustainability?
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Executive summary
Argentina’s recent policy pivot—sharp fiscal consolidation, liberalisation of currency controls, and tight monetary measures under President Javier Milei—has coincided with a dramatic fall in inflation from hyperinflationary peaks in 2023 to much lower year‑on‑year rates through 2025, and has restored market confidence sufficient to reopen financing channels; independent multilateral and market analysts credit fiscal discipline and the new exchange‑rate regime for much of the disinflation while warning that external and political risks keep debt sustainability fragile [1] [2] [3].
1. Fiscal tightening as the shock absorber for inflation
The decisive front‑loaded fiscal adjustment—spending cuts, pension and payroll reductions, and measures that produced a fiscal surplus after years of deficits—reduced the need for money‑financed deficits and is widely identified as the principal factor that broke inflationary dynamics, with OECD and academic observers pointing to fiscal soundness as decisive in bringing down inflation expectations [1] [3] [4].
2. Exchange‑rate liberalisation and market confidence
Lifting currency and capital controls and introducing a managed exchange‑rate band calmed markets and limited pass‑through to prices: the OECD notes markets reacted positively and inflation expectations barely rose after the new regime was announced, while commentators emphasize that returning foreign capital and more flexible exchange management cushioned external shocks [5] [1] [2].
3. Monetary policy and the sequencing question
Monetary policy moved in concert with fiscal repair—real interest rates turned positive as inflation fell and central‑bank rates were adjusted—yet analysts differ on causality; some papers argue fiscal credibility was the binding constraint and monetary tightening played a supporting role, while other market reports highlight frequent policy adjustments and rate cuts that boosted credit, underscoring that monetary policy remained volatile even as headline inflation dropped [3] [6].
4. Measured success on inflation, but with caveats on volatility
Official and independent trackers report a sharp decline in headline inflation—from annual rates above 200% in 2023 to figures in the tens of percent by mid‑2025 and monthly inflation often reported near single digits or low single digits in mid‑2025—yet several sources warn that month‑to‑month inflation remained sticky at around 2% in 2025 and that peso nominal weakness can re‑ignite price pressures if confidence falters [5] [7] [6] [8].
5. Debt sustainability: improved optics, not a definitive cure
External perceptions and market access improved—Deloitte projects consolidated public‑sector net debt around US$29.3bn (about 48% of GDP) by end‑2025, a level comparable regionally—but debt dynamics remain contingent on maintaining fiscal surpluses, rebuilding reserves, and securing rollover financing; commentators and research centres stress Argentina’s chronic external constraint and the need to lower country risk to avoid repeated crises [9] [10] [11].
6. Risks, distributional costs and political economy
The policy mix reduced inflation but imposed sharp short‑term social costs—poverty spiked in H1 2024 before declining in 2025—and critics (including left‑leaning outlets) warn of deferred obligations, peso‑indexed domestic liabilities and exposure to carry trade and speculative flows that could erode reserves and revive dollar‑linked debt burdens, pointing to the unresolved structural fragility beneath the headline gains [6] [12] [4].
7. Outlook: conditional consolidation
Projections from OECD and BBVA expect inflation to continue declining gradually and growth to recover if fiscal prudence persists and capital inflows are sustained, but virtually all sources emphasize conditionality: debt sustainability hinges on persistent primary surpluses, reserve rebuilding, and insulating policy from political reversals or external financing shocks—without which a relapse into high inflation or renewed rollover crises remains possible [2] [11] [1].