Argentina’s recent disinflation is one of the sharpest macroeconomic reversals seen in an emerging economy in years. In late 2023, annual inflation was approaching 300 percent, wages were losing purchasing power in a matter of weeks, and another classic balance of payments crisis appeared imminent. Two years later, inflation has fallen for eighteen consecutive months and now runs a little above 31 percent year on year, the lowest rate since 2018. That figure still places Argentina among the world’s most inflationary economies, but the direction and pace of change are notable. They are the result of a specific combination: Javier Milei’s shock-style stabilisation at home and an unusually political form of support from Washington abroad.
Milei campaigned on promises to “chainsaw” the state and “dynamite” the central bank. Beneath the rhetoric sat a conventional orthodox programme: halt monetary financing of fiscal deficits, execute a harsh relative price adjustment and absorb the social and political costs in exchange for disinflation and a recovery of credibility. Independent analyses converge on the same core sequence. A sharp fiscal consolidation, a large upfront devaluation and an abrupt stop to central bank money creation allowed Argentina to sidestep outright hyperinflation and initiate a standard disinflation process.
The critical steps were taken within days of Milei’s inauguration in December 2023. The government doubled the official exchange rate overnight, cut subsidies, liberalised many administered prices and tightened liquidity conditions. The initial adjustment pushed monthly inflation to around 25 percent in December and January as the weaker peso and higher tariffs passed through to domestic prices. The underlying logic was straightforward: concentrate the adjustment at the beginning of the term, then rely on fiscal restraint and tight money to allow real balances and expectations to realign. By mid 2024, monthly inflation had fallen into single digits. By May 2025, it was down to 1.5 percent, the lowest reading since 2020.
On the fiscal front, the administration moved more quickly and more aggressively than many observers thought politically viable. Public spending fell by roughly 30 percent in real terms in the early months. The primary balance shifted into surplus for the first time in more than a decade, largely through the erosion of expenditures rather than increases in taxation. Central bank financing of the deficit effectively ceased, a central condition of Argentina’s programme with the International Monetary Fund. The draft 2026 budget foresees a primary surplus of about 1.5 percent of GDP and projects inflation declining to around 10 percent by the end of that year. The credibility of that forecast is contested, but the policy orientation is clear: fiscal balance is treated as the anchor of the stabilisation.
Monetary and exchange rate tactics provided the second pillar. Following the initial devaluation, the authorities adopted a tightly managed crawl and deployed very high interest rates together with capital controls to prevent another lurch into full dollarisation. As inflation declined while the nominal exchange rate moved only gradually, the peso rose steeply in real terms. Many analysts now judge the currency to be roughly 20 percent overvalued. That overvaluation has compressed prices in the tradable sector and reinforced disinflation, but at the expense of external competitiveness and export margins.
The third pillar, and the one that turns a disinflation chart into a geopolitical story, has been external support orchestrated by the United States. Argentina remains the IMF’s largest borrower, with more than 40 billion dollars outstanding. In early November, as a sizable repayment to the Fund approached, the US Treasury quietly withdrew about 900 million dollars of its own IMF reserve assets and effectively re-lent them so that Argentina could avoid falling into arrears. This step followed a 20 billion dollar bilateral currency swap and stabilisation arrangement announced in October, under which Washington agreed to provide dollar liquidity to Argentina’s central bank and, crucially, to purchase pesos directly in the market to support the currency.
Collectively, these measures amount to a US-designed floor under Argentina’s external position. Official reserves had already been bolstered by an earlier swap line from China that is not fully usable; the US intervention gave Milei space to pursue a hard disinflation strategy without precipitating an immediate balance of payments crisis. The timing was politically resonant. The swap line and the prospect of US peso purchases were announced ahead of pivotal midterm elections, in a manner that appeared crafted to stabilise the currency and the expectations of the urban middle classes long enough for the government to claim visible progress on inflation.
The question that follows is why inflation has fallen as rapidly as it has. Part of the explanation is mechanical. Argentina’s economy contracted sharply in 2024. Deep recession compressed aggregate demand, drained credit and reduced the pricing power of firms. Real wages lagged well behind prices, imports fell, and the current account moved into surplus. The other part concerns expectations and perceived regime change. For years, the central bank monetised deficits, while key relative prices were frozen or adjusted in opaque and arbitrary ways. The combination of a rigid fiscal ceiling and a credible external backstop signalled to firms, households and investors that the regime had shifted. Survey data and market forecasts now place year-end 2025 inflation somewhere between the high teens and the mid-40s. The range is wide, but all such projections represent a dramatic improvement relative to the triple-digit norms of the recent past.
The social cost of this disinflation has been substantial. The “chainsaw” approach has reduced public employment, subsidies and social transfers. In Buenos Aires, homelessness has increased by nearly 40 percent in less than a year; more than 4,500 people are sleeping on the streets, and more than 200,000 formal jobs and 18,000 businesses have vanished. Poverty rose sharply in the initial phase of adjustment even as headline macro indicators improved. Only once inflation began to slow and modest growth returned in mid 2025 did some observers note a slight decline in poverty rates relative to the peak reached during the first months of reform. Critics contend that some of the most severe cuts, affecting disability benefits, pensions and local services, contribute relatively little to deficit reduction while serving an ideological project of state retrenchment.
Politically, Milei has so far contained the backlash. Despite recurrent protests and declining approval ratings, his coalition performed better than anticipated in the midterms and now forms part of the largest bloc in Congress, which gives him more legislative leverage than many anticipated at the outset. The inflation figures are central to that resilience. For a society marked by decades of price instability, the move from 25 percent monthly inflation to roughly 2 percent is experienced as a qualitative shift, even if employment and incomes have yet to recover. The central wager in Buenos Aires, and in Washington, is that voters will accept two or three harsh years if the result is a return to something resembling macroeconomic normality.
The new equilibrium, however, is precarious. Underlying inflation still exceeds 30 percent, a level that would qualify as a major crisis in most other economies. Much of the observed disinflation reflects one-off corrections and base effects. Keeping inflation on a downward trajectory toward single digits will require maintaining tight fiscal and monetary settings through an additional electoral cycle. The strong peso that now helps suppress prices is already generating anxiety among exporters and could eventually undermine the recovery if it is sustained. Above all, the stabilisation is heavily dependent on external confidence. If US political support weakens, if the swap line is not renewed, or if IMF programme reviews turn negative, the financial cushion could erode rapidly.
There is also a strategic tension in the US role. On paper, an “America First” posture would incline Washington to avoid expending political capital and scarce foreign policy attention on a chronically indebted borrower at the southern end of the hemisphere. In practice, the Trump administration has judged that backing Milei serves three purposes. It anchors a vocally pro-US government in a G20 country; it reduces China’s leverage by diluting Argentina’s dependence on a Chinese swap line; and it provides a real-time test of a more austere IMF programme that still avoids outright collapse. That strategy has proven contentious. Agricultural interests and some legislators see the swap and the use of US reserve assets as a de facto bailout that sits uneasily with protectionist instincts. Progressive critics emphasise the social costs of the programme and the absence of explicit social safeguards in the conditionality.
For other emerging economies and for the IMF itself, Argentina’s disinflation poses difficult questions. One reading is that a government prepared to undertake extreme front-loaded austerity, and fortunate enough to enjoy a sympathetic White House, can still use the Fund as a channel for large-scale support and obtain rapid disinflation. Another reading is that Argentina’s situation is highly idiosyncratic. Few democracies could absorb cuts of this magnitude without political breakdown. Fewer still could count on the US Treasury to purchase their currency in the open market in the run-up to national elections. The risk is that Argentina becomes both an exemplar and a warning. It shows that entrenched high inflation can be reduced quickly, but also that the social and political price renders such strategies difficult to replicate.
The second phase of Milei’s project will be more complex than the first. The government has already delivered the most conspicuous macroeconomic indicator: the disappearance of near-hyperinflationary monthly readings. The next tasks are less visible and more politically sensitive. They will involve restoring growth, rebuilding real wages, and gradually normalising the monetary and exchange rate framework without reigniting instability. Dollarisation, once the symbolic centre of Milei’s campaign, has slipped into the background as a medium term aspiration rather than an immediate objective, in part because the current support architecture is built around a managed peso rather than a formal shift to the dollar.
For now, the disinflation line that appears in charts and policy briefs captures a real achievement. A country widely regarded as synonymous with chronic inflation has produced one of the steepest disinflations in recent decades. Yet that line is only one dimension of a broader configuration in which macro stabilisation, social cohesion and major power politics are tightly connected. Whether Argentina has genuinely escaped its inflationary pattern will be determined less by the next series of consumer price index releases than by whether Milei, his domestic opponents and his foreign supporters can convert a sharp, externally supported stabilisation into a more balanced and domestically sustainable economic order.
