Two Years of Milei: Is Argentina's Libertarian Gamble a Miracle or Mayhem?

Two years into President Javier Milei's presidency, Argentina remains in the midst of one of the most ambitious economic overhauls attempted by any modern democracy. What began as shock therapy for an ailing economy evolved into a test of whether a country long plagued by populism, interventionism, and government spending can reinvent itself and be thriving again. 

Argentina is moving past the initial chaos of Milei's early reforms. Expectations, results, and political reality are all colliding into an interesting intersection, especially in light of the recent midterm elections giving Milei a bigger mandate than I imagine Milei himself was anticipating. With yesterday marking the two-year anniversary of Milei getting elected into office, it is time to see where Milei stands and whether his libertarian gamble has paid off. 

Milei's Successes 

Much like I did during Milei's one-year anniversary, here are some of the indicators that show that Argentina is faring better than it was before Milei assumed the presidency: 

Inflation rate - Argentina has had a chronic inflation problem, as the country's inflation data from El Instituto Nacional de Estadística y Censos (INDEC) indicates. The increase in inflation that Argentina goes through in a month is what a typical Western nation goes through in a year, which gives an idea of the economic pain that Argentina endures. For the most recent month available, October 2025, that number was an increase of 2.3 percent. However, this is much lower than the peak of 25.5 percent that Argentina reached in December 2023 (Reuters). Argentina's annual inflation rate has not been this low since 2018. If Milei can continue with reducing inflation, it will show durable growth, investment, and social-economic stability.

GDP - As INDEC GDP data indicate, Argentina's GDP has been on an overall growth trajectory since Q4 2024. It cooled off a bit in Q2 2025 at -0.1 percent, but on a year-to-year basis, Argentina's economy expanded by 6.3 percent. Why did it not start growing before Q4 2024? Because Milei implemented shock therapy to the economy, including massive cuts to public spending, removing subsidies, a 54 percent devaluation, and tight monetary policy. These were all necessary measures to get hyperinflation under control, but they do mess with short-term economic output. 

Fiscal consolidation - Fiscal consolidation, which is the reduction of deficits through spending restraint, subsidy cuts, and  improved revenue discipline, has been one of the clearest markers of Argentina's policy shift under Milei. As this OECD report shows, Argentina achieving a primary surplus after years of chronic imbalances sharply reduced the need for money printing. Fiscal consolidation helps stabilize prices and expectations. These moves signal to investors and markets that Argentina is laying the groundwork for a more sustainable and growth-oriented economy. 

Capital markets - An August 2025 IMF report shows that Argentina regained access to capital markets ahead of schedule. Decades of defaults, capital controls, and runaway inflation effectively closed off Argentina from the global capital markets, leaving the country more reliant on domestic financing. According to the IMF, fiscal consolidation, monetary tightening, and foreign exchange rate liberalization rebuilt investor confidence enough to start opening up access once more. The reason why this is important is that it suggests restored and improving investor confidence, which is a key precondition for foreign investment, external financing, and sustainable growth. As long as there are not renewed or external shocks, this should hold for Argentina.

Areas for Improvement

While I commend Milei for these accomplishments, there is still work that needs to be done for Argentina to truly reform. I am not going to be able to cover everything, but these are a few that caught my eye.

Labor Market Pressure - INDEC measures what is "labor market pressure," which is a combination of unemployed, underemployed, and those seeking another job. This aggregate figure is at 30.5 percent, when it was at 29.7 percent the year before. This figure is concerning for Milei because it signals labor stress beyond the official unemployment rate. Essentially, it implies that Milei's reforms have yet to translate into widespread labor market confidence. This is an issue because without contracts, benefits, or stable incomes to make formal employment more attractive, Milei's economic growth will happen more slowly than he would like. 

Corruption and Civil Liberties - There was no improvement of Argentina's scoring in Transparency International's Corruption Perceptions Index (CPI). This can suggest that Milei's approach has not translated into stronger accountability, transparency, or control over corruption. PEN International also expressed concerns about freedom of expression declining since Milei came into power. On the other hand, Argentina's Freedom House score remains steady at 85 and Argentina is still classified as a Free Nation. Considering that Argentina was run by a military junta that was kidnapping citizens about half a century ago, this is a good thing. 

Cost of Living Pain - Even as inflation has decreased considerably by Argentinean standards, that does not mean that everything is hunky-dory. This was a paradox I experienced when I visited Argentina a couple of months ago, that the macroeconomic figures looked good, but things are still quite unaffordable. First, lower price increases do not ignore that prices continue to rise and that it's still expensive. Second, there are certain goods that skyrocketed. For example, the public services basket, which includes gas, transport, water, and electricity, increased by about 526 percent since December 2023. This is in contrast to the 164 percent by which the overall Consumer Price Index increased. In other words, the public services basket increased about three times the overall inflation. 

Food Prices and the Poor - This is also the case for food prices. Meat, dairy, and bread saw particular spikes in 2025. Food inflation is a persistent problem in Argentina, especially for the poor and those working in the informal labor market. Since these staples remain expensive for many households, it does not feel like gains are being made. Food prices rose to a new high plateau during the initial economic shock therapy in 2024, which hits the poor harder because a larger percent of their income goes to food. Milei is fixing the macroeconomy and doing so faster than anticipated. This is not unique to Argentina's economic shock therapy. It follows the same moral geometry that happens with any economic shock therapy. Why? The poor feel the costs the most because they are the least able to absorb those shocks. The question is how longer it will take for Milei to complete the transition, and how longer the poor can endure the associated costs.

Postscript

Given the mess that Milei inherited, I would say that he has done an outstanding job. Milei's first two years have shown that fiscal consolidation, tight monetary policy, and reducing public spending can bring inflation down, balance the budget, and increase economic growth. While these are major successes in comparison to what Argentina was like in 2023, there are still considerable challenges. The formal labor market has shrunk, informal labor remains large, and many households face economic stress, regardless of what official poverty statistics have to say. 

I brought this up when analyzing Argentina's monetary policy vis-à-vis the crawling band last October. Argentina needs to go beyond macroeconomic headline numbers. For Argentina to have long-term growth, Milei will need to address deep structural challenges alongside his macroeconomic reforms. This includes deregulating labor to encourage more formal hiring, simplifying the tax code, liberalizing trade to boost competitiveness, and phasing out subsidies and price controls, to name a few. Even with a stronger mandate from the midterms, Milei's reforms still face political pushback, social resistance, and institutional inertia that could slow or complicate the path to longer-term stability. But If Milei can navigate the landmines entailed in implementing these next steps, the foundations for long-term prosperity will be established and economic stability will become a norm for Argentina.

¡Viva la libertad, carajo! 

Milei's Monetary Tightrope: Argentina Is Caught Between a Crawling Band and Whatever Comes Next

Last Sunday, I left Buenos Aires after spending 40 days. It suffices to say Argentina has been on my mind a lot. I have mostly examined Argentina through an academic public policy lens, but it was intriguing to see firsthand how it is to live there for a bit and to talk with Argentineans about life in Argentina. I knew that Argentina had its problems. It went from being one of the world's most powerful economies to succumbing to a populist and protectionist stranglehold of high taxes, tariffs, corruption, profligate government spending, capital controls, and currency controls. No other country in history went from being an economic powerhouse to a middle-income economy the way Argentina did. 

The Challenge Ahead for Milei

I knew that whoever would try to clean up this mess would have their work cut out for them, especially given that President Javier Milei inherited one of the least free economies on the planet. It is not simply a matter of considerable political opposition that has gotten in the way. It is trying to untangle the quagmire of decades of poor economic and monetary policy choices that make it difficult. Bridging the gap between economic theory and implementing policies in practice can be quite tricky, as Milei has found. I realized this was especially the case for Milei's monetary policy. 

Understanding the Crawling Band versus the Fixed Peg

When I was in Argentina, I noticed considerable exchange rate fluctuation. I had to check daily how many pesos a dollar could purchase because it did change that drastically. As I discovered during my time in Buenos Aires, Milei has been implementing what is called a crawling band. A crawling band is an exchange rate system where a currency can fluctuate within a set range (a "band") that shifts gradually over time according to predefined rules or market conditions. The band currently is maintained between 1,000 and 1,400 Argentinean pesos (ARS) to the dollar. The premise is that it combines short-term stability with long-term flexibility. This is supposed to help avoid the shocks of a full float and issues that come with the rigidity of a fixed peg. 

Argentina had implemented a fixed peg prior to this latest crawling band. That fixed peg was unsustainable. The capital controls drained the foreign exchange reserves and incentivized importers and exporters to manipulate invoices, thereby undermining confidence in the system. A crawling band was more aligned to the market, allowed for greater transparency, and increased price signaling.  

Why a Floating Currency Is Ideal

While a crawling band is an improvement over a fixed peg, what bothers me in part is that Milei is a minarchist, which is someone who wants government only to perform the most basic of services. He studied Austrian economics and is quite skeptical of government intervention, especially when it comes to central banks. That is why it is so peculiar that he would go along with a crawling band, which is a form of government interventionism. It makes me wonder if he is abandoning his economic training or he is dealing with a clash of his ideals versus the reality of Argentina's situation. 

Ideally, Argentina would have a free floating peso. After all, a free floating currency is a good metric of a mature, stable economy. A free-floating currency allows market forces to determine the currency's value, providing a transparent signal of economic fundamentals and reducing the distortions caused by artificial pegs or interventions. It also encourages fiscal and monetary discipline, as policymakers cannot rely on fixed exchange rates to mask underlying economic weaknesses.

The problem is that Argentina's economy is neither mature nor stable. Argentina's current economic conditions, which are characterized by high inflation, low foreign reserves, persistent fiscal deficits, and weak institutional credibility, make a pure free-floating peso highly vulnerable to sharp devaluations and financial instability. A free float right now could trigger severe exchange rate volatility, capital flight, and a worsening of the current account.

That is not mere speculation. From 1991 to 2001, Argentina had pegged the peso 1:1 to the U.S. dollar. Fiscal deficits and a recession made the peg unsustainable. When the peg was abandoned, the peso plummeted and lost about 75 percent of its value in a matter of months. Hyperinflation and social unrest followed. I would not be the least bit surprised if this recent history has influenced Milei's decision to implement a crawling band. 

Lessons From Other Economies Liberalizing Currency Too Soon

Argentina is not the only country that felt pain after transitioning to a free-floating currency too quickly. In 1998, Russia allowed its ruble to free float in response to fiscal crisis. As a result, the ruble lost 70 percent of its value and inflation spiked. Prior to October 2008, Iceland had a managed float system tied to inflation targeting. Because Iceland had large foreign liabilities and small foreign reserves, its banking system collapsed and Iceland had to free float its krónur. In a matter of a few weeks, the krónur's value dropped by half and inflation surged. In 2018, Venezuela also tried to allow for floating mechanisms amid hyperinflation. However, it made matters worse. 

The takeaway here should not be that floating exchange rate systems are bad. On the contrary! A country that can manage a floating exchange rate system can handle the volatility and absorb the shocks that comes with letting the currency freely move. That is because such economies have the fundamentals to do so, whether that is a credible monetary policy; a sound fiscal policy; deep and liquid financial markets; or public and investor trust. 

Skepticism Behind Argentina's Crawling Band

The case studies above show a few commonalities with why their transition to a floating exchange rate system went awry, whether it was weak fiscal conditions, limited reserves, poor institutional credibility, or sheer panic. Argentina's current plight has such conditions. As of August, Argentina had about $33 billion in foreign reserves. In February, BNP Paribas estimated that Argentina would need about an extra $11-20 billion before the October elections to be able to lift the exchange controls. While the recent currency swap could help improve Argentina's reserves, I remain skeptical that it would be adequate to get Argentina off the crawling band:

• If the exchange rate approaches or exceeds the band in place, the central bank needs to use foreign reserves to defend the peso. Things seem to be improving, but as Argentinean economic history shows, that could change in a heartbeat. 
• Argentina still has an external financing gap of $15.2 billion. While Milei has done a good job of fiscal consolidation by reducing deficits, there is a question of whether it is sustainable, whether due to political opposition or social unrest. The midterm elections on Sunday suggest that Milei is on to something, but knowing Argentina, that could change. 
• The currency swap does not address the real exchange rate misalignment. In February, the central bank set the crawling peg at 1 percent per month. However, inflation in 2024 was 2.7 percent per month. That is a significant improvement from what it was before, but it still creates a gap. As long as domestic inflation outpaces the crawl of the peso, it will hurt export competitiveness while worsening the current account, which echo some of the unintended consequences that the Competitive Enterprise Institute warns about with such currency manipulation. Without addressing this gap, the currency swap is a temporary fix. 

As the Cato Institute illustrates in its criticism of the crawling band, when the gradual depreciation lags behind the inflation, it mirrors similar structural issues that resulted in the 1994 Mexican peso crisis and the 1997 Asian financial crisis. This could be more problematic if the currency swap does not go through or is discontinued. With this hybrid regime, speculators know the direction of the currency adjustment, which creates greater speculation. This expectation of a sharper devaluation encourages capital flight, which forces the central bank to use more reserves. This both undermines the stabilization effort and heightens the risk it was meant to prevent.  

Milei Needs an Exit Strategy

Here is my other issue with Milei's crawling band. The crawling band is often seen as a transitory regime. But what is Milei transitioning towards? Is it a free-floating peso? Is it dollarization? Is it a fixed regime? Milei's lack of an exit strategy plan makes the transitionary regime seem temporary. Investors are attuned to that lack of a plan, and as such make investors weary of investing in Argentina. Since there is not a rules-based adjustment system in Argentina, it can be viewed as a political tool rather than a credible anchor to lead towards long-term growth. Without a clear strategy, markets are not going to have enough confidence in Argentina. As the Peterson Institute for International Economics points out, a substantial currency swap line without deeper reforms will unlikely save the peso in the long-run. 

An Endgame That Could Work

As stated above, a free-floating system would be ideal. It allows market forces to set prices, it signals economic fundamentals, and it incentivizes monetary and fiscal discipline. Conversely, Argentina's structural weaknesses would make a full floating peso risky in the short run, much as history has taught us. While imperfect and prone to amplifying risks if mismanaged, it is the most viable mechanism in the short-run. My ultimate personal preference is a free-floating currency, but only when the Argentinean economy is ready for it, which it currently is not. 

Milei's crawling band could be seen as a short-term pragmatic compromise towards dollarization or ultimately a floating currency. It could be argued that markets need some gentle guiding in the short-run to reach long-term liberalization. That being said, the Milei regime needs to make the transitional crawling band head towards a credible currency system if he has any chance of a liberalized currency system to work. 

Milei could announce fiscal rules around spending limits or deficit caps. A published widening schedule or intervention triggers could improve transparency, thereby improving market confidence. Such monetary rules as a base money growth ceiling or inflation targeting paths could also help. Adhering to rules would improve institutional credibility. So would cutting public sector largesse, eliminating distortive subsidies, publishing public accounts, or ending the monetization of deficits because it signals to the markets that Argentina is breaking cycles of its dysfunctional past instead of doing it for optics' sake. Without reserves, fiscal anchors, institutional credibility, or a rules-based endgame towards a more liberalized currency regime, Milei's half measures would most likely send Argentina into more economic chaos. 

President Javier Milei Improved Argentina in His First Year as Planet's First Libertarian President

As much as I love Argentina culturally, its economy has been ruined by nearly eight decades of Peronist government largesse, including gargantuan government redistribution programs, protectionism, an exceptionally interventionist monetary policy in which the central bank printed money like it grew on trees, and general disregard for property rights (not to mention the civil rights abuses throughout Argentina's modern history, especially in the 1970s). Argentinians were so dissatisfied with the rampant inflation, eroding purchasing power, and pervasive poverty that in 2023, they elected the first self-identifying libertarian head of state, Javier Milei. It is more than Milei's eccentric personality, which included waving a chainsaw at political rallies promising how he was going to cut government spending. Milei had an established career as an economist, author, and professor prior to becoming President. 

This week commemorates the one-year anniversary that he assumed his role as head of state for Argentina. So-called conventional wisdom predicted that Milei's "shock therapy" would make matters worse for Argentina. While I was thrilled to see a libertarian head of state that could potentially be an inspiration to other world leaders to cut back on regulations, taxation, and government spending, I knew he had to contend with a lot. Plus, Argentina had been ranked as a repressed economy by Heritage Foundations' Economic Freedom Index prior to Milei's election. It turns out that in spite of the political and economic obstacles he had to face, Milei had a successful first year. 

• Within the first few months, he was able to cut enough government spending where Argentina had a budget surplus for the first time in over a decade. Milei has continued to generate a budget in subsequent months (IARAF). When you compare Milei's surpluses to previous deficits, the difference is astounding. It is even more so when you consider that Argentina has spent the last 113 out of 123 years running up deficits. 

 

• Milei's elimination of rent control was so effective that it lowered housing prices while expanding the housing supply. 
• Milei has also passed a daily average of 1.8 deregulations since he entered office, which is significant because Argentina is one of the most regulated countries on the planet and its economic growth is thus stifled by regulations. This does not even include trimming the government from 19 ministries to nine ministries. 
• In October 2024, monthly inflation dropped to 2.7 percent, which was about 30 percent a year ago. While that level of inflation seems unfathomable for the Western world, monthly inflation in Argentina has not been this low since November 2021, according to government officials at the Instituto Nacional de Estadística y Censos (INDEC). For a country that has gone through literal hyperinflation, this is a great accomplishment. 

• Argentina's central bank, Banco Central de la República Argentina (BCRA), has lowered the interest rate from 133 percent in December 2023 to 33 percent in December 2024. While this is still among the highest in the world, this move on BCRA's part will lower costs of borrowing money ought to increase investment, consumer spending, and job creation. 
•  Fitch Ratings upgraded Argentina's credit rating to "CCC" last month because of an ability to pay foreign-currency bond payments without issue. 
• Argentina's Emerging Market Bond Index (EMBI), which is JPMorgan's index for measuring debt risk, dropped to a five-year low in October. 
• December 16, 2024 Addendum: I had to add this because this milestone made me excited: Argentina's economy exited a severe recession in the third quarter of this year. 
• If Gallup polling that came out this week is indicative of anything, it is that Argentineans are more hopeful of the state of the economy. 

Postscript. Not everything has been smooth sailing for Milei. In addition to such political obstacles as trade unions and Peronist politicians who prefer the status quo, there has been an increase of the poverty rate, which has reached over 50 percent under Milei. This could very well be part of the short-term pain the Argentineans have to endure to untangle the disaster of Peronist economic policy. If the calculations from the Universidad Católica Argentina are correct, then the poverty in Argentina is already decreasing (see below). [1/11/25 Addendum: Poverty in Argentina in the fourth quarter fell to to 36.8 percent].

Whether the citizens of Argentina can hang on long enough will have sway over the political feasibility over Milei's plans for the second year. Hopefully for Argentina, Trump's political affinity with Milei could accelerate negotiations with the International Monetary Fund and result in a more generous support package, thereby making the short-term poverty spike more tolerable.

That being said, I think it has been a good first year for Argentina. Milei inherited rampant government debt, a high poverty rate, and an annual inflation rate exceeding 200 percent. Milei is getting a handle on government spending, which was one of his major campaign promises. Improved monetary and fiscal policy have lowered inflation, at least by standards in recent Argentinean history. In spite of the increased poverty, wages are beginning to rebound and Milei still remains popular in Argentina. 

Would I like to see Milei do something about dollarization or capital controls? Yes. Furthermore, it is also true that Argentina's tariff rates and overall taxation rate remain high, not to mention Milei being unable to privatize any of the state-owned businesses. It will be more difficult for Milei to achieve his plans for Argentina to become an economic powerhouse once more if he does not address some of these fundamentals soon. But I also know that Rome was not built in a day and that we should not make perfect the enemy of good. I think that if Milei is able to stay on course, 2025 will look even better for Argentina than 2024. If successful, he can provide a mighty case study for how much of a positive impact deregulation, lower taxes, and less government can have on millions of lives. 

¡Viva la libertad, carajo!

Milei Eliminates Rent Control in Argentina, the Housing Market Booms: When Will the U.S. Political Left Learn?

Javier Milei has grabbed my attention not only because he is the President of Argentina, but more notably because he is the first libertarian head of state. In January, I was excited about his push to deregulate one of the most highly regulated countries in the world. In February, I got to write about how Milei's austerity created the first budget surplus in Argentina in over a decade. Today, I have the pleasure of featuring another one of Milei's victories, aside from having a 55.4 percent approval rating.

In 2020, Argentina introduced a form of tenant rent control. Aside from requiring tenancies to last a minimum of three years, rent was capped at a weighted average of inflation and wage growth. Deposits were capped and rent had to be paid in Argentinean pesos (ARS). Contract length regulations increased the risk of landlords acquiring troublesome tenants. Landlords forewent expensive maintenance while evictions soared. While the rent cap helped a small number of landlords sell property, the truth is that one in seven housing units laid empty. As a basic microeconomics course would teach, reducing the supply actually increased prices. Rent for a two bedroom in Argentina soared from 18,000 pesos a month in 2019 to 334,000 pesos in early 2024. 

To respond to this housing nightmare, one of the Milei's first acts as President of Argentina was to do away with rent control. How has that fared since he enacted that decree in December 29, 2023? The effect on the housing market was immediate. As the libertarian Mises Institute pointed out in April, housing began to rise as prices began to fall. According to an article from Newsweek published last week, the supply of rental housing in Buenos Aires boomed by 195.23 percent since December 2023. 

While encouraging, this news hardly came as a surprise. When I first lambasted rent control on this blog back in 2014, I laid out the economics of rent control and showed how rent control constricts housing supply. I brought up the topic again in 2022 when Pasadena passed rent control. This past June, I covered a meta-study on all the harms of rent control, including less mobility, lower quality of rental units because of disincentive to perform regular maintenance, bringing down property value and neighborhood quality, decrease in new construction, and higher rents in the overall market.

Yet Western politicians on the Left rave about it and are attracted to it as palatable, even though economists on all sides of the aisle can agree that it makes for foul economic policy. Last month, I illustrated how Biden's rent control proposal would have screwed over the U.S. housing market. Earlier this month, presidential candidate Kamala Harris embraced the harebrained idea of rent control. Politicians in Europe do not seem to know any better, including Sweden, Ireland, and Germany. As socialist economist Assar Lindbeck once stated, rent control is one of the most effective ways to destroy a building short of bombing it. Argentina serves a fine example of what happens when you remove rent control. What are the odds that other Western politicians will actually listen? 

Argentina's First Budget Surplus in Over a Decade Showing Merits of Economic Austerity

For me, austerity is a term I remember coming across frequently during the Great Recession and subsequent years. It is reminiscent of the economic malaise from last decade. Whether it was the Netherlands, Greece, or Great Britain, the neo-Keynsians were disparaging of any attempt of cutting government spending by labeling it as "austerity." Austerity refers to strict economic policy to rein in growing public debt, typically in the form of lower taxes, lower government spending, or a combination. Regardless of how the tax rates or government spending rates pan out, the idea is to implement these measures to improve economic health. 

Fast-forward to December 2023 when Javier Gerardo Milei became president of Argentina. While Trump and Milei both have exuberant and flamboyant delivery styles, that is where their similarities end. Unlike Trump and his tariff-loving populism, Milei is a right-wing libertarian and a component of free markets. Milei promised to take a chainsaw to the country's crippled economy with a laissez-faire approach. Milei consolidated eighteen governmental ministries into nine ministries. This also included eliminating the National Institute Against Discrimination, Xenophobia, and Racism (INADI), about which Milei said "[INADI] no sirve para nada," or loosely translated, "it does not do squat." He let go of 7,000 government employees, as well as devalue the Argentinean peso by about half so that Argentinean goods can be more competitive in the global markets. As I brought up last month, Milei also brought up a series of ways to deregulate the government. 

The reason why Milei is taking this approach is because the Argentinean economy is in trouble. When I asked in December 2023 whether Argentina should dollarize, I pointed out that Argentina's economy is plagued with unemployment, devaluation, inflation, and poverty. The reason why Argentina elected a libertarian to the office of President was in part because decades of government largesse and irresponsible monetary policy was not serving the Argentinean people. These austere measures are needed because Argentina is economically in hot water. 

Although Milei has only been in power for a couple of months, we are already seeing positive results. For the first time in twelve years, Argentina's government has produced a budgetary surplus (see government data here). The importance and gravitas cannot be stated enough. Milei took what was projected to be a budget deficit of 5.2 percent of GDP and turned it into a surplus of $580 million USD in less than three months. To translate that into the U.S. federal budget, that would be like taking Congress' $1.2 billion deficit and turning that into a $400 million surplus. That is more impressive considering the United States has not had a budgetary surplus in over two decades. Even U.S. Secretary of State Antony Blinken praised Milei for his economic efforts. 

It has only been a little over two months and Milei has plenty of political opposition that could hinder what he is looking to accomplish. At the same time, this is a great start to helping Argentina become the economic powerhouse it once was. It is not only Milei's political career or the Argentinean economy that hang in the balance. The stakes are higher than that. If Milei succeeds, he will show other countries that freer markets and less government intervention lead to greater economic prosperity. It will serve as an inspiration to other countries to get their profligate government spending under wraps. 

After all, it is why the United States experienced another downgrading of its credit rating last year. Last year, I compared the United States' fiscal deterioration to that of Argentina and rightly so. Argentina serves as a fine example of what economic misery comes when government spending runs wild. Hopefully, Milei can be successful in his efforts and show us what happens when economies abandon socialistic tendencies for more capitalistic ones. By embracing capitalism can we hope to improve the quality of life for citizens across the globe. 

¡Viva la libertad, carajo!

Deregulation Hasn't Really Been a Road Taken for Argentina, But Milei's Efforts to Do So Are the Right Path

Even before Javier Milei was elected, numerous media outlets have vilified Milei. At the Financial Times, he is a radical right-winger. For the Left-leaning organization Fairness and Accuracy in Reporting (FAIR), Milei is deemed "really as extreme as you get in right-wing libertarian ideas." One article in Forbes designated him a destroyer. France 24 labels him an "anarcho-capitalist." After reading these articles, it would not shock me if these journalists read my blog and similarly lobbed ad hominem attacks at me. 

It is not like Milei is an uneducated idiot. Milei was an economics professor for 20 years and wrote more than 50 academic papers. He was also a chief economist at Máxima AFJP and a senior economist at HSBC Argentina. His style and delivery are more Trump-esque in nature, as is illustrated by Milei using a chainsaw to illustrate how he would cut inflation if elected. However, his policy views widely diverge from Trump. Trump is a nationalist and protectionist who limited immigration and free trade during his four years in office. Milei is a minarchist (i.e., advocates for minimal government) while being influenced by the Austrian school of economics. He certainly has no love for Argentina's central bank. 

Last week, Milei sent an omnibus law to the National Congress of Argentina entitled Bases y puntos de partida para la libertad de argentinos (Translation: Basic Law and Starting Points for the Freedom of Argentinians). Admittedly, I have not read the bill yet, but you can view the 183-page bill here if you want to read it. What I can gather is that it entails much deregulation, ranging from the airlines industry and protectionist measures of industries to end price controls and the prohibition on exports. A plurality of these regulations were implemented under the dictator Juan Carlos Ongangía, which says a lot.

The truth of the matter is that Argentina's economy is in disarray, something which I wrote about in 2014 and 2019. The Heritage Foundation's Index of Economic Freedom has Argentina ranked 144 out of 176. Aside from the political interference and poorly functioning judicial system, Argentina ranks so low because it has lots of fiscal spending, price controls, capital controls, and has other regulations to discourage entrepreneurship. 

The Cato Institute's Human Freedom Index is no less flattering. This Index looks at both personal freedom and economic freedom. At least for personal freedom, Argentina ranks 38 out of 165, although it would be nice to see improvement in rule of law. This finding on personal freedom lines up with Freedom House's Freedom of the World Index, which fortunately ranks Argentina as "Free" in terms of political and civil liberties. As for economic freedom, we see below that Cato Institute's Index ranks Argentina as one of the most regulated countries in the world. 

As the adage goes, "desperate times call for desperate measures." Milei was right to declare a decree of necessity and urgency (Decreto de necesidad y urgencia, DNU) on December 20, 2023. Years of regulations, increased government spending, and printing pesos as if money grew on trees has caught up with Argentina. My theory is that mainstream media outlets are so keen on lambasting Milei because his election and pending reforms undermine the idea that "government knows what is best." 

I doubt that I would agree with literally every single one of Milei's proposals. As ideologically similar as I am to him, it is not possible to agree with someone on everything. As happy as I am that Argentina has elected a libertarian president, I am not going to automatically agree with simply because it is Milei's proposal. I will base any policy analysis on the merits of the argument or policy itself, much like I already have with Milei's proposal to dollarize Argentina or being perplexed as to why Milei would raise taxes on grain. I will say that based on what I have seen, Milei is by and large on the right path. 

With opposition controlling the majority of the Argentinian Congress, it begs the question of how likely Milei's reforms will pass. However, if successful, I would wager that freer trade, fewer regulations, and less profligate government spending will help make Argentina the economic powerhouse that it once was prior to Juan Perón.

Why Argentina Needs to Ditch Its Peso and Pursue Dollarization "Ya Mismo"

Argentina's economic state has been in disarray for quite some time. In 2003, the Argentinian peso (ARS) was valued at about 3 pesos to the U.S. dollar (USD). The peso has undergone such devaluation that it the ratio is 361 ARS:1 USD. In other words, the Argentinian peso is worth about 99 percent less now than it was two decades ago. It is expected to devalue another 70 percent in the next year. Last month, Reuters reported that inflation in Argentina has hit 143 percent. It has gotten to the point where about 40 percent of Argentinians live in poverty. And here I thought that the inflation in the United States hit my wallet! I can only imagine what Argentinians have endured in the past couple of decades. 

This economic pain would help explain why Argentina elected its first libertarian president. In November 2023, 55.7 percent of Argentinians voted in Javier Milei into office. This is the highest percent of votes that an Argentinian presidential candidate has received since Argentina has been a democracy. The Argentinian people have had enough with failed Peronism and are open to a change to improve their economic situation. One of Milei's most notable policy reforms is dollarization, which is the adaptation of the dollar as the country's currency. Below, I will address some of the common arguments used by critics of dollarization. 

Dollarization means giving up seignorage. If Argentina adopts the dollar, that would mean the Argentinean central bank (el Banco Central de la Républica de Argentina, or BCRA) giving its ability to generate profit from creating money, i.e., seignorage. Shortly after coming back from my vacation to Ecuador in 2021, I addressed this point while analyzing the Ecuadorean case study on dollarization. In spite of relinquishing seignorage along with lender of last resort status and being more able to handle external shocks, dollarization ended up being an improvement over Ecuador's hyperinflation in the late 1990s. 

Plus, if Argentina were to relinquish its seignorage, it would mean losing an estimated 0.6 to 0.8 percent of GDP, according to Argentinean economist Emilio Ocampo. Yes, it means the BCRA would lose some revenue. However, for a country with a 2022 GDP of $632.77B, a price of $3.8-$5.1B is a small price to pay for greater economic stability and avoiding hyperinflation. 

Argentina would not be able to handle external shocks without seignorage. First and foremost, Argentina is already at a grave disadvantage with the hyperinflation and devaluation of the peso that has increased poverty in Argentina. Giving up seignorage seems like a reasonable tradeoff. Second, the three Latin American countries that have formally dollarized (Ecuador, El Salvador, and Panama) entered the 2008 financial crisis and the COVID pandemic with lower interest rates than their Latin American counterparts. Plus, the dollarized countries have been able to maintain lower rates of unemployment. 

Even if there were something quite exigent, these countries could still approach the International Monetary Fund (IMF). This argument also ignores the Panamanian case study. Panama integrated its banks into the global markets after a series of liberalization measures. As a result, its changes in the money supply are based on an interplay of local factors and the global credit markets, and not at the whims of the U.S. Federal Reserve. 

Where will the dollars come from? This is one of the main questions that dollarization critics ask. The criticism here is that there are not enough available dollars in Argentina to make the transition to dollarization. As of October, the BCRA had a currency-reserve deficit of $7.5 billion. There is concern if the BCRA cannot cover the difference because it could mean further devaluation of the peso and subsequent economic downturn. However, there are reasons to not be concerned:

1. If Milei shows a sincere commitment to dollarization, creditors will be inclined to lend the difference.  
2. As the Ecuadorean and El Salvadoran case studies show, Argentina would not need to have the difference covered overnight. As a matter of fact, Ecuador and El Salvador were able to dollarize in a way that not only avoided bank runs, but resulted in an increase of bank deposits in dollars. 
3. The Argentinean economy is already dollarized in an informal sense. As of the end of 2022, Argentineans held $246 billion of U.S. dollars in foreign bank accounts, safe deposit boxes, and undeclared cash. This is greater than the $50 billion in Argentinean pesos that exists in the Argentinean M3 money supply. As such, the fiscal cost of dollarization would be low. 
4. There is the matter of the liquidity note (LELIQ, or letras de liquidez) time bomb. In its current state, it would be an obstacle. However, swapping the BCRA's assets for bonds in a foreign jurisdiction would diffuse the bomb. 

Dollarization is not a silver bullet. This seems like a red herring because proponents of dollarization are not making that claim. After examining the Ecuadorean case study in 2021, I realized that dollarization was not going to solve Ecuador's woes. Dollarization does not fix intractable budget deficits. Rather, dollarization was a necessary first step to improve economic conditions. For Ecuador, Argentina, or any country considering dollarization, they would need to realize that dollarization needs to come with other fiscal and macroeconomic reforms.  

The reality of the matter is that the burden falls on the critics of dollarization to prove that the BCRA can stabilize the economy without giving legal tender to hard currency. The critics of dollarization cannot provide a solid alternative to dollarization. As Argentina's history shows, exchange rate pegs or currency boards have not fared well for Argentina. Decades of BCRA negligence and intransigence show that the Argentinean central bank lacks the discipline to do so, which makes dollarization a more attractive monetary regime. In effect, the Argentinean economy already does not have a lender of last resort on the national level. Even if you are to invoke the IMF as a lender of last resort, guess which currency the IMF uses in its lending? U.S. dollars. 

Dollarization is not going to motivate Argentinean politicians to embrace fiscal prudence or austerity. At least with dollarization, having monetary policy and fiscal policy as two separate forms of policy can minimize the damage that Argentinean fiscal policy can wreak on the Argentinean people. It means that the BCRA cannot print pesos to spend more money than it receives in taxes. To finance deficit, it would have to borrow instead of printing. Dollarization would tame inflation and price volatility. It would mean that the citizens of Argentina would not have monetary policy grind them into poverty. Ultimately, it is hope for economic prosperity in Argentina.

Macri Imposed Capital Controls: When Will Argentina Learn Its Lesson?

To say that the Argentinian economy is not performing well is an understatement. Peso depreciation began in 2018, and ever since, Argentina has been on a downward spiral with no end in sight. Earlier this month, Argentinian President Mauricio Macri reinstated capital controls as a short-term emergency measure in the hopes that it will improve the deteriorating state of the Argentinian economy.

Before continuing, it would be prudent to define what a capital control is. A capital control is a measure taken by a government or central bank to limit the flow of foreign capital in or out of a country. They can take the form of tariffs, transaction taxes, volume restrictions, or outright bans. I had to consult my macroeconomic policy textbook from graduate school (Caves et al., 2007, p. 516), but capital controls have four possible aims:

• To discourage capital outflows in the even of a balance-of-payment crisis
• To discourage capital inflows in the aggregate, before a crisis
• To modify the composition of capital inflows, in particular to discourage short-term banking inflows, relative to other inflows
• To decouple domestic interest rates from foreign rates, with the aim of restoring some monetary independence

Let's jump back to capital controls in an Argentinian context. Prior to Macri getting elected, the capital controls were bad enough where 10 percent of Argentinian adults were buying dollars on the black market. About half of educated, middle-class adults were doing so (Schiumerini and Steinberg, 2019). Macri made a big deal of it during his 2015 presidential campaign. When he removed the capital controls shortly after his election, his decision to do so was very popular (Steinberg and Nelson, 2019). What happened Macri's election and now that he would change his mind?

Macri's initial removal of capital controls showed a break from the previous administration and a push for reform. While it provided a short-term boost of investor confidence, the Argentinian government was still borrowing a lot of money to finance its debts. Budgetary shortfalls combined with inflation and a drought that messed with Argentina's agricultural sector made matters worse, which is why the peso devalued as much as it did. The IMF-backed loan plan was not enough to stabilize the economy. As such, Macri lost the primary election (PASO) on August 11, which triggered another round of peso-selloffs because people weren't exactly confident in a Peronist government led by the leadership that got Argentina into this mess in the first place. Even if the capital controls could stabilize the peso, it does not look good for Macri's reelection chances. Macri's choice is based on his perception of stabilizing the economy along with politics.

Now that we understand the political calculus behind the decision, I have a more policy-focused question: do capital controls work? This is not a debate you see in economically developed countries because they do not need those controls. After, the globalization and integration of financial markets diminishes the need to use them. Conversely, capital controls are more common among developing countries, such as Argentina, precisely because their capital reserves are lower and their economies are more susceptible to volatility.

There are some who think capital controls succeed (Landy and Schiavone, 2018; Levy Yevati, 2011), some who think they fail (e.g., Alfaro et al., 2017; Pasricha et al., 2015; Alfaro, 2015; Carvalho and Garcia, 2006; Forbes, 2005), some who think that it depends on it being implemented short-term (e.g., Davis and Presno, 2014) or the level of short-term capital flows (Magud et al., 2011), and those at the OECD found contradictory results (OECD, 2016). The Federal Reserve Bank of San Francisco found that capital controls work better on capital inflows than outflows (Magud et al., 2007, p. 21). As for foreign exchange liquidity specifically, the Bank for International Settlements conducted some research. While capital controls reduce the cost component of FX market liquidity, they also make the market more vulnerable to order flow imbalances (Cantú García, 2017).

In the vein of the research being more ambiguous, I feel a certain ambivalence about capital controls. On the one hand, I know a country such as Argentina has not reached the level of economic maturity to do away with capital controls. Perhaps removing them suddenly as opposed to gradually was a mistake for Argentina. It is disconcerting because Argentina has cooperated with the IMF and has used other standard policy instruments to try to abate the peso devaluation.

On the other hand, not needing them shows a maturity of a given economy. I worry that capital controls are like putting a Band-Aid on a cold in that it is a short-term fix to a long-term, structural problem. As we saw with Malaysia, capital controls were used to cover up corruption and ineffective monetary policy. By limiting convertibility, the value of assets is diminished. Viewing the economy as a zero-sum game is as erroneous when discussing goods and services as it is when discussing capital.

There is an argument to be made that the success is conditional and situational, especially if implemented as a short-term solution. Even if a theoretically successful capital control could be implemented in practice, I worry that Argentina's monetary history and how Argentinians have turned to the underground market in the past would diminish the argument. At best, Macri's capital controls are going to be a temporary stop-gap that won't do too much if he cannot get a handle of the macroeconomic fundamentals.

A Look at Projections for the Argentinian Economy in 2019

I recently vacationed in Buenos Aires for about a week. It was the first time that I traveled abroad by myself, and I have to say that I quite enjoyed myself. Not only did I get to see the sights of Buenos Aires, but it gave me an opportunity to talk to Argentinians. One of the common themes that came up in conversation with the people I met was the economy. Inflation is not as bad as it is in Venezuela, but it's bad enough where inflation for food went up 3.7 percent between December and January. While I was down there, they had announced on the news that year-to-year inflation went up by 49.3 percent.

This inflation is the latest in ongoing Argentinian economic woes. In the 2000s and early 2010s, Argentina was run by the Kirchners. During the Kirchner administrations, inflation was at 40 percent, unemployment was high, and Argentina endured a recession. In response, the Argentinian people elected Mauricio Macri in 2015. Unfortunately, Macri didn't do enough to fight off economic issues. An increased reliance on external financing got so out of hand that the Argentinian peso (ARS) devalued by nearly half (see my 2018 analysis here). At the beginning of 2018, the exchange rate was about 14ARS:$1USD. When I was on vacation, the peso devalued to about 40ARS:$1USD. From my conversations while I was on vacation, it does not seem like things have gotten better for Argentina. Looking at the current data and economic projections, I wanted to see if things were getting better, worse, or if it is more of the same.

Fitch Ratings: Fitch affirms its rating for Argentina at B. However, in November, it changed its outlook from stable to negative. Weaker prospects for economic growth, as well as uncertainty surrounding fiscal consolidation and market financing availability, drove Fitch's more pessimistic outlook. Fitch does not expect a positive outlook, and even a stable one is unlikely. Strengthening in external liquidity, recovery in economic activity, and complying with IMF's near-term fiscal targets would provide Fitch with more optimism. The political uncertainty of the elections and potential macroeconomic instability could make matters worse. While macroeconomic adjustments take place, investors are likely to be cautious in 2019. On the plus side, Fitch anticipates that sovereign financing needs will be covered in 2019.

Banco Central de la República Argentina: According to its Resultados del Relevamiento de Expectativas del Mercado (also see here), the Argentinian central bank is predicting 28.5 percent inflation in 2019. GDP growth is varied for 2019 (-1.2%), 2020 (2.5%), and 2021 (2.5%), although it looks like 2019 will be the worst of it for the medium-run. The exchange rate is looking to take a hit. It is expected to go from 38.3ARS to 48.0ARS to the dollar.

Heritage Foundation Economic Freedom Index for 2019: Argentina's economy continues to be classified as "Mostly Unfree" under this Index (also see here). The Index's metrics of Property Rights and Monetary Policy improved year-to-year, whereas Government Spending and Fiscal Health decreased. Government spending has amounted to 41.6 percent of GDP, which is problematic when the Macri government is using austerity (i.e., less government spending and higher taxes) to close the fiscal gap.

International Monetary Fund (IMF): In December 2018, the IMF released its latest report on the stand-by agreement it made with Argentina earlier in 2018. As of October 2018, Argentina met the IMF's program targets, and is projected to meet the 2019 targets. The economy is expected to rebound in the second quarter of 2019 because the agricultural sector will pick up after the drought of 2018 (p. 7). Global financial conditions are of worry, as are the results of the 2019 presidential election. Conversely, increased trade with Brazil could help stabilize (ibid.). Another plus is that demand for Argentinian bonds has strengthened and sovereign risk is on the decline. Monetary policy is also geared to bring down inflation (p. 12).

Organization for Economic Cooperation and Development (OECD): In its November 2018 economic forecast, the OECD expressed concern that fiscal and monetary tightening will keep Argentina in a recession through 2019. On the other hand, what will be a drag on short-term growth will help Argentina deal with fiscal and current account imbalances in the longer-run, as well as restore confidence in the Argentinian economy. While it is expected to be painful for Argentina in 2019, developing stronger macroeconomic fundamentals will help Argentina in the future.

Standard and Poor's: The renowned credit rating agency downgraded Argentina from B+ to B in November 2018 (France24) due to inflationary issues and lack of economic growth. Standard and Poor's does predict that if the economy can stabilize and the upcoming presidential election doesn't take Argentina off course, there should be a recovery in the next year or so.

World Bank: In its January 2019 Global Economic Outlook, it predicts that the Argentinian economy will contract 1.7 percent in 2019, followed by 2.7 percent GDP growth in 2020 (World Bank, p. 83). The 2019 GDP growth prediction is in line with the IMF's prediction (IMF, p. 25).

My Concluding Thoughts: The agreement that Argentina made with the IMF in 2018 is putting the Argentinian economy through some short-term pain. That much I witnessed firsthand when I was in Argentina. Argentina has an unusual economic history in that it went from being an economically developed country in the early 20th century to becoming more undeveloped since the mid-20th century. Argentina has decades of subpar public policy that has shaped its economy into the mess that it is today. It is discombobulated enough where there is no easy solution if Argentina wants a long-term remedy. The hard truth is that if the Argentinian economy not only wants to recover but also become a fully developed economy, it needs to deal with the austerity in the short-term.

That is a difficult thing to convince Argentinians of, especially when there is a presidential election later this year. Although Argentinians are having to deal with lower incomes, higher interest rates, and higher unemployment in the short-run, President Macri might have less to worry about than anticipated, as is outlined in this analysis from the Council on Foreign Relations. Aside from security being an issue that is as important to Argentinians as the economy, there is no great alternative to Macri. The best bet right now is former President Christina Fernández de Kirchner. Her policies were the ones that got the Argentinians in this economic quagmire in the first place. Even better, Kirchner is currently wrapped up in a corruption scandal.

This is not to say that Macri has the election secured because another economic downturn shortly before an election would most probably undo his current advantage. That being said, I understand that what the IMF is asking Argentina to do on a macroeconomic level is politically unpopular. But if the next president of Argentina undoes the progress made, not only would that erode global confidence in Argentina, but it would prevent Argentina from much-needed macroeconomic adjustment. If Argentina could stay the course with the IMF agreement, it would do wonders for the Argentinian economy in the medium-term. It is easy to say "no pain, no gain" as a distant observer who does not have to worry about his cost of living skyrocketing because of tight fiscal and monetary policy. At the same time, short-term pain is exactly what Argentina needs to go through if it wants to stop repeating its history of substantial economic downturn.

Peso Depreciation, Inflation, and Interest Rate Hike: Is Argentina Looking at a 2018 Recession?

Panic is a word that one could use to describe the Argentinian economy right now. The Wall Street Journal recently referred to it as a death spiral. The value of the Argentinian peso (ARS) fell 6.6 percent relative to the U.S. dollar on May 3. This devaluation has been occurring for quite some time, although this decline was the largest. In order to stop further depreciation, the Argentinian central bank (Banco Central de la República de Argentina) raised the interest rate to 40 percent a little over a week ago. For context: less than a month ago, the interest rate was 27.5 percent. It is bad enough where the Argentinian government asked the International Monetary Fund (IMF) for a bailout loan. I thought the IMF would not have given Argentina money considering that Argentina defaulted on an IMF loan in 2003. However, an agreement for a $30 billion loan of emergency aid is underway. What I have to wonder is what is the magnitude of the problem here.

Positive Economic Indicators

• Inflation fell from 40 percent in 2016 to 24 percent in 2018. 
• Argentina has recovered from its 2015 recession, although at a slower rate than the last two recessions (IMF, p. 4).
• Argentina is in a better position to accept an IMF adjustment program since it no longer has its peso pegged like it did in the 1990s.
• The public sector is projected to reach its deficit target of 3.2 percent (BBVA).
• Argentina's economic volatility is balanced by high per-capita income, a large and diversified economy, and improved governance scores (Fitch).
• The GDP is expected to grow considerably and inflation is expected to slow down (IMF, p. 9).
• "The removal of foreign exchange controls...resolution of the dispute with bond holders, and realignment of utility tariffs have corrected Argentina's most urgent macroeconomic imbalances (IMF, p. 4)."

Negative Economic Indicators

• Argentina will experience forex (foreign exchange) pressure from an unsustainable current account, lack of central bank credibility, and worsening external financial conditions (BNP Paribas). 
• Currency risk for companies based in Argentina is going to be high through mid-2019, according to Moody's.
• A combination of a high interest rate and currency depreciation will make further capital outflows costly. 
• Argentina has a budget deficit of 6 percent. Without new budget measures, the budget will increase precipitously. 
• Because of the increase of foreign financing and low global risk premier, there has been an upward pressure on the real exchange range. This has left the Argentinian peso overvalued by 10 to 25 percent, thereby exacerbating external imbalances (IMF, p. 9). 
• The low percent of exports will make it more difficult for Argentina to recover from its external debt (Council on Foreign Relations; IMF, p. 7).
• 30 percent of Argentina's foreign exchange reserves are non-transferable letters of credit (letras intransferibles). This means it will be more difficult for Argentina to pay off its liabilities or withstand a currency crisis (American Institute for Economic Research).

What Will Happen?

It might be fun to prognosticate, but at the end of the day, this is still speculation based on economic analysis. Nevertheless, I'll give it a go. I know that these economic shifts will both undermine Macri's economic policy of gradualism and diminish his odds of re-election. With the Argentinian central bank depleting its foreign reserves, there is little it can do to stop the capital outflow, which is worrisome. The silver linings are that Argentina is not anywhere near defaulting, and that the private sector-denominated debt is low. Even so, there are a few ways that Argentina can proceed. BNP Parnibas suggests that because of the trap of fiscal dominance, either fiscal adjustment (lowering the budget deficit) or further depreciation of the peso are the main options. Another option is currency reserve management and making sure Argentina buys enough local currency. Years of populist and protectionist policy will make any adjustment painful. What will make this more painful is that this is the canary in the emerging market coal mine. I don't think there will necessarily be a recession by the end of the year, but I anticipate a tough road ahead for the Argentinian economy. 

For more reading, read the main sources here:
- IMF's 2017 Article IV Consultation for Argentina
- Banco Central de la República Argentina [BCRA] (Report of Financial Stability, First Half of 2018)
- BBVA Research
- Heritage Foundation Economic Freedom Index

Don't Cry for Argentina and Its Latest Default

I find myself in a sardonic enough of a mood to wonder if defaulting has become an Argentinian pastime. About a week ago, Argentina de facto defaulted on its bonds for the second time in thirteen years per a New York court ruling. If you need a good primer on Argentina's history on defaulting and how we arrived at this situation, the Washington Post has a good analysis on it. There are some speculations as to the effect this default will have both on the defaulting country and the global market. Default is typically rough on a country because it becomes nigh impossible to borrow money from other countries to help the defaulting country rebuild its economy. This is the eighth time in Argentinian history that it has defaulted, so maybe the eighth time is the charm. So who do we blame for Argentina's default?

Maybe Argentina was receiving bad advice from its lawyer. Maybe this is a sign we need to adjudicate sovereign-debt disputes in international courts because Argentina was not given enough leeway with being able to restructure its debt (although, in all fairness, the court ruling is too narrow to have broader implications). I'm actually going to put the vast majority of the blame on Argentina. While I was in graduate school, I wrote a policy paper for one of my classes outlining the fiscal irresponsibility and poor macroeconomic decisions that led to the 2001 default. It doesn't help that Argentina's economy is not in the greatest of shape (although it could be doing much, much worse), nor that its freedom of press has been in decline. And let's not forget its deteriorating economic freedom (see here and here). This is not a case of a victimized nation-state that has been bullied or coerced. It is about Argentina needing to make payments that it promised to make. Some kvetch how it's unfair to make Argentina payments on "vulture funds," but you know what is truly unfair? Reneging on debt payments you promised to pay. Refusing to keep to your word is something that should put any sensible creditor at ease.

Whether it's dealing with student loans, mortgages or sovereign debt payments, we should hold contracted parties accountable for their financial irresponsibility. That is why the court-induced default was a victory for the rule of law. Argentina chose to borrow money under New York jurisdiction, waived sovereign immunity, and agreed to no collective action clauses (Collective action clauses are more common in such debt restructuring now than it was when Argentina first took out the loans, which is another reason why this court ruling isn't going to have broader implications). Argentina lost fair and square because it preferred to borrow money at a lower interest rates and for a longer period of time than to borrow elsewhere. Either pay what you owe, which seems to be in Argentina's power, or default. Argentina has weathered worse economic conditions before, it hasn't had the same potential for the contagion effect that the last default had, and I think they will be able to make it through this default. There's no reason to cry for Argentina, so why waste your tears?