By Finn Andreen<\/p>\n
The ascent to power in Argentina of the first avowed\u00a0libertarian<\/a>, in the person of Javier Milei, was seen not only with excitement by many libertarians but also as a moment of truth. Not only did it show that it was possible to get a majority of the electorate of a large country to vote for a radical agenda of freedom, but it also suggested that libertarians might finally be able to show the entire world that the unhampered free market is not only possible, but also highly beneficial for any society.<\/p>\n It is not surprising, therefore, that both libertarians and statists are looking closely at this latest Argentinian experiment, which began early 2024, for signs of Milei\u2019s success or failure. Libertarians should feel comfortable with this expectation, considering the solid theoretical foundation of the\u00a0Austrian School<\/a>\u00a0of economics that\u00a0inspires<\/a>\u00a0Milei.<\/p>\n There are a couple caveats, however, that need to be made in this respect. First, the difficult transition from a statist society to a free society should not be disregarded and cannot be blamed on libertarianism itself. It must be said that the practical, political process of getting to an unhampered free market has not been a main focus of libertarian thought. Second, the road to freedom could be obstructed for any number of practical reasons, such as external or human factors, wholly unconnected to libertarianism. For instance, the elected leader and the government could be\u00a0flawed<\/a>\u00a0and the political class could resist change.<\/p>\n Generally Positive Results After a Rocky Start<\/p>\n It\u2019s been a turbulent start for Milei\u2019s administration, with quick positive results of reforms, but accompanied by the expected difficulties in the transition away from a high-tax, spendthrift, and inflationary economy. Price inflation\u2014one of the main scourges of Argentinians for decades\u2014decelerated\u00a0markedly<\/a>. For 2024, GDP contracted -1.8 percent, which was better than in 2023 (-3.1 percent), and a strong GDP rebound is\u00a0projected<\/a>\u00a0for 2025 (5.2 percent). Because of cuts to public spending, in August 2025, the Argentinian state had a budget surplus of 1.3 percent of GDP, which is an unprecedented turnaround for a country accustomed to spending more than it earns.<\/p>\n But the austerity measures\u2014cuts in subsidies, public sector job reductions, large devaluations\u2014inevitably brought social costs, initially plunging millions into poverty. Yet, the poverty rate then fell sharply in the second half of 2024, dropping from 52.9 percent in\u00a0the first half<\/a>\u00a0of 2024 to 38.1 percent. Unemployment in Buenos Aires Province\u00a0climbed<\/a>\u00a0to 9.8 percent, higher than 2023.<\/p>\n Generally, macro-economic indicators are pointing in the right direction despite the inevitable and expected rocky start. However, Milei\u2019s most serious battle probably concerns the Argentinian peso, an area where Austrian economics could be the guiding light to avoiding repeating past errors.<\/p>\n The Argentinian Peso: A Story of Mismanagement<\/p>\n In 1991, Argentina pegged the peso to the US dollar at a one-to-one rate. Every peso had to be backed by an equivalent US dollar held in reserves. Initially, price inflation collapsed, and investment surged. But, by surrendering monetary sovereignty, Argentina lost the ability to adjust to global conditions. As the US dollar strengthened in the late 1990s, the peso became overvalued, hurting exports and fueling unemployment. Unable to devalue or set its own interest rates, the government borrowed heavily in dollars, deepening future vulnerabilities.<\/p>\n By 2001, Argentina was in recession. As investors fled and reserves dwindled, the government froze bank withdrawals to stop capital flight. Riots erupted, the government defaulted on over $100 billion of debt, and the peg was abandoned in 2002. The peso lost about 70 percent of its value within months, with the social consequences that can be imagined. After the collapse, Argentina adopted a floating exchange rate. But initial gains faded quickly as fiscal indiscipline returned; chronic price inflation above 30 percent became normal, multiple exchange rates emerged, and confidence eroded.<\/p>\n With Milei, the peso was initially devalued significantly (from roughly 400 ARS\/USD to ~800 ARS\/USD) as part of the efforts to reduce price inflation. By April 2025, the government moved into a more flexible exchange-rate regime: the peso was allowed to float within a currency band (e.g., between ~1,000-1,400 ARS\/USD) and many capital\/currency controls were removed.<\/p>\n By late 2025, Argentina operated a \u201cmanaged\u201d float of its currency. The official exchange rate is roughly ARS 1,480 per USD, while the informal \u201cblue dollar\u201d rate is around ARS 1,580. The main risk is that the peso cannot be easily defended in this transition phase, with net central bank reserves only at USD 6 billion. This is the main reason Argentina received a\u00a0stabilization fund<\/a>\u00a0of an additional USD 20 billion from the US in October 2025, which also contributed to an important midterm election\u00a0win<\/a>for Milei.<\/p>\n But the peso is still\u00a0over-valued<\/a>, hurting exports and competitiveness. For example, Argentinians have bought brand-name whiteware and beef\u2014a flagship Argentine export\u2014from abroad, which, due to the peso rate, are cheaper than their local equivalents.<\/p>\n Yet, Milei\u2019s plan for the peso is not simply to let the peso float freely but even to\u00a0abolish<\/a>\u00a0the central bank and let the market set interest rates, as Austrian theory recommends. This is yet a reminder that the transition to a free-market economy is a process, which therefore must consider politics.<\/p>\n Lessons from the Austrian School<\/p>\n