President Javier Milei's Argentina just achieved its first budget surplus in 12 years, boasting a 256.9% increase in tax revenue and a 50.3% drop in public spending in January 2024. This milestone, exceeding the 2.77 billion peso surplus recorded in the last surplus in 2012, marks a potential turning point for the nation's finances. Skeptics and critics warn of the long-term sustainability of the drastic measures being employed which Milei himself refers to as "shock treatment". Argentina's financial trajectory under this unconventional leader has investors taking notice, making it a country worth watching in the ever-evolving South American landscape.
In the first full month of President Javier Milei's administration, tax revenues grew by 256.9%, and deep cuts were made to public expenditures which fell by 50.3%. The reduction by more than half of public spending is even more striking when considering that inflation during the period was 254% on an annual basis.
This milestone represents Argentina's first positive financial result since 2012 when a financial surplus of $620 million was announced by then Finance Minister Axel Kicillof. This surplus was achieved under Cristina Fernández de Kirchner's term and mostly resulted from her policies of reducing imports through more government controls.
While the August 2012 primary budget surplus of 0.2% GDP generated initial optimism, it wasn't sustainable. Argentina returned to deficits just months later, with the primary deficit reaching 2.6% of GDP by the end of 2012. Government spending was increased to fund social programs and to expand the government through more programs and employees. The subsequent economic slowdown caused by the restrictive government policies, and other factors, caused an economic slowdown and placed inflationary pressures on the peso.
Related Articles:
President Milei's Response
Milei's response to the good news from his Economy Minister Luis Toto Caputo? "Leeettsss go everyone...!!! A deficit of zero is non-negotiable. LONG F*C&ING LIVE FREEDOM" [translated from Spanish].
Economy Minister Caputo
Javier Milei is a political outsider and his victory rattled the establishment. Particularly those whose livelihoods and economic interests might be upended by a new approach to governing Argentina. Those concerns were alleviated somewhat when Milei appointed Luis Caputo as his economy minister.
“For the market, this is like your best friend becoming economy minister,” said Salvador Vitelli, head of research at the Buenos Aires-based Romano Group
Caputo is a known quantity. He's a former Wall Street trader and previously helped run the finance ministry under conservative President Mauricio Macri in a variety of roles between 2015 and 2018. He's earned the nickname as "the Messi of finance" with some friends describing him as "a total brain" who is an introvert but at the same time a charming salesman.
So far Milei's "shock treatment" is proceeding well for the people of Argentina. Only time will tell if the winning streak will continue, but there isn't a more interesting country in the region at this moment than Argentina. Investors who haven't previously invested in Argentina should start getting up to speed. The risk-adjusted return potential of Argentina is too great to ignore.
