Argentina – Model of Economic Reforms That Works

South Africa could learn many valuable lessons from Argentina and its economic revival at the hands of President Javier Milei.

In Particular there should be much to learn from the significant cuts in Argentina’s public spending that has recently delivered a budget surplus in a country once thought to be doomed to bankruptcy and economic delinquency.

South Africa’s budget deficit is currently projected to be around 5% of GDP. The 2024/2025 financial year saw a tax shortfall of R22.3 billion. Despite electricity production becoming more stable with fewer energy blackouts during the period. Overall economic growth for the year Is anticipated to end at under 0,5% growth for the year.

Familiar Story of Failures

Prior to the Milei presidency, and his strict cost cutting program, Argentina was in effect an economic disaster, despite a large potential of vast agricultural land, and large reserves of natural gas, plus substantial mineral deposits.

If this sounds familiar it is because South Africa is very similar in situation and like Argentina, South Africa seems all too keen to open itself to populists and socialist ideologues, that in Argentina, resulted in a destroyed economy with ill-thought policies, regulations and overspending.

Prior to Milei’s reforms, as of December 2023, Argentina’s inflation rate was 211.4% – the highest in 32 years. After his reforms, as of October 2024, the monthly inflation rate had dropped to 2.7%.

There was of course initial pain felt with the poverty rate rising to 41.7% (prior to reforms) to 52%, but has reduced to a much lower level of approximately 38.9%.

Argentina had been running a consistent deficit since 2011, averaging around 4.03% of GDP, again a very similar economic path to that of South Africa today.

After the cost saving reforms, introduced by Milei, Argentina has been sitting with a remarkable budget surplus, despite numerous nay-sayers that had predicted its failure. Even more commendable and significant for the country, GDP forecasts have grown from a 2% increase to an 8.5% increase, as opposed to the negative – 3.4% contraction seen under the previous socialist government.

Relentless commitment to Reform Paid Off

Milei did not use any caution in his cost cutting but halved the number of ministries from 18 to 9, completely removing some considered unnecessarily and merging other ministries to streamline their operations. The result was a meaningful cost saving of around 30%.

80% of public infrastructure projects were cancelled. 74,000 government workers were laid-off, reducing the public payroll by around 20%.

Argentina’s government, like South Africa’s, was bloated, ineffective and corrupt. The vast majority of its government workers were unproductive and ineffective – merely extracting wealth from productive taxpayers and giving little to nothing in return.

What South Africa can learn from Argentina’s Reforms

Honesty and transparency is a key learning in place of manipulation and deception or meaningless promises. Most people would accept a short period of hardship, knowing for certain that they would benefit by longer term stability, economic growth and development, In the case of Argentina, due to the commitment to the process, this period was less than a year.

What South Africa needs to do is address the deficit not through ideologically motivated wealth taxes, but through spending cuts. Poorly thought out policies such as the newly enacted Land Expropriation act and NHI, that cannot be afforded, or the completely crazy notion of a new 3% transformation fund tax of all corporate profits, need to be cut off now.  South Africa’s 32 government ministries, is globally one of the largest in size and a massive trimming of the bloated government is decades overdue. With a focus on cutting costs, and embracing free market policies that enable job and wealth creation, South Africa will not only have the potential to balance the budget, but become increasingly more wealthy. Something that will benefit all