Argentina’s Austerity Gamble: Inflation Drops, But Poverty Soars

Since taking office in December, Argentina’s President Javier Milei has delivered on his campaign promise to slash public spending and tackle inflation head-on. His far-right, free-market policies, which include deep cuts to welfare programmes, have brought some short-term victories, such as reducing inflation from a staggering 26% monthly rate in December to 4% by June. Yet, these achievements come at a heavy cost.

Poverty rates have surged to over 52.9%, the highest in two decades, pushing an additional 3.4 million Argentinians into hardship. Public services have been gutted, pensions frozen, and tens of thousands of government employees laid off. The cuts have eroded the purchasing power of ordinary citizens, and the cost of living has skyrocketed with the reduction of energy and transportation subsidies. For many, life has become a daily struggle just to survive.

Markets and international organizations like the International Monetary Fund (IMF) have applauded Milei’s bold approach to curbing Argentina’s runaway spending and tackling its budget deficit. His administration has achieved fiscal surpluses for the first time in years. However, these austerity measures have stirred widespread discontent at home, where soaring poverty and unemployment have sparked protests.

Despite Milei’s insistence that he inherited an economic mess from previous left-wing governments, critics argue that his policies are exacerbating the suffering of the working class and vulnerable populations. As inflation, though slowed, remains over 230% annually, it’s unclear whether the government’s tough measures will eventually deliver broader economic relief—or deepen the crisis further.

Poverty rates have surged to over 52.9%, the highest in two decades, pushing an additional 3.4 million Argentinians into hardship. Public services have been gutted, pensions frozen, and tens of thousands of government employees laid off. The cuts have eroded the purchasing power of ordinary citizens, and the cost of living has skyrocketed with the reduction of energy and transportation subsidies. For many, life has become a daily struggle just to survive.

Markets and international organizations like the International Monetary Fund (IMF) have applauded Milei’s bold approach to curbing Argentina’s runaway spending and tackling its budget deficit. His administration has achieved fiscal surpluses for the first time in years. However, these austerity measures have stirred widespread discontent at home, where soaring poverty and unemployment have sparked protests.

Despite Milei’s insistence that he inherited an economic mess from previous left-wing governments, critics argue that his policies are exacerbating the suffering of the working class and vulnerable populations. As inflation, though slowed, remains over 230% annually, it’s unclear whether the government’s tough measures will eventually deliver broader economic relief—or deepen the crisis further.

Glossary of Key Economic Terms:

1. Austerity: Government policies aimed at reducing public spending, often through cuts to social services, subsidies, and public sector jobs.
2. Budget Deficit: The shortfall when a government spends more money than it receives in revenue.
3. Devaluation: A reduction in the external value of a country’s currency relative to others, making imports more expensive and exports cheaper.
4. Fiscal Surplus: When a government’s revenues exceed its expenditures, opposite of a deficit.
5. Hyperinflation: An extremely high and typically accelerating rate of inflation, often exceeding 50% per month.
6. Inflation: The rate at which the general level of prices for goods and services is rising, reducing purchasing power.
7. International Monetary Fund (IMF): An international financial institution that provides loans to countries experiencing balance of payment problems, often requiring austerity measures in return.
8. Peronism: A political ideology in Argentina associated with populism and government intervention in the economy, named after former President Juan Perón.

Retrieval Questions for A-Level Students:

1. What economic strategy has President Milei implemented to reduce inflation and the budget deficit in Argentina?
2. How has the poverty rate in Argentina changed during Milei’s presidency?
3. What are some of the social and economic consequences of Milei’s austerity measures?
4. Why have international markets and organizations like the IMF supported Milei’s policies?
5. What challenges does Milei face in achieving sustained economic recovery for Argentina?

Glossary of Key Economic Terms:

1. Austerity: Government policies aimed at reducing public spending, often through cuts to social services, subsidies, and public sector jobs.
2. Budget Deficit: The shortfall when a government spends more money than it receives in revenue.
3. Devaluation: A reduction in the external value of a country’s currency relative to others, making imports more expensive and exports cheaper.
4. Fiscal Surplus: When a government’s revenues exceed its expenditures, opposite of a deficit.
5. Hyperinflation: An extremely high and typically accelerating rate of inflation, often exceeding 50% per month.
6. Inflation: The rate at which the general level of prices for goods and services is rising, reducing purchasing power.
7. International Monetary Fund (IMF): An international financial institution that provides loans to countries experiencing balance of payment problems, often requiring austerity measures in return.
8. Peronism: A political ideology in Argentina associated with populism and government intervention in the economy, named after former President Juan Perón.

Retrieval Questions for A-Level Students:

1. What economic strategy has President Milei implemented to reduce inflation and the budget deficit in Argentina?
2. How has the poverty rate in Argentina changed during Milei’s presidency?
3. What are some of the social and economic consequences of Milei’s austerity measures?
4. Why have international markets and organizations like the IMF supported Milei’s policies?
5. What challenges does Milei face in achieving sustained economic recovery for Argentina?

Poverty rates are typically measured using various indicators that assess individuals' or households' ability to meet basic living standards, such as food, shelter, healthcare, and education. The two most common approaches to measuring poverty rates are:

1. Absolute Poverty

This approach defines poverty based on a fixed income threshold, often referred to as the "poverty line." Anyone earning below this threshold is considered to be living in poverty. The poverty line is usually set based on the cost of basic necessities like food, housing, and clothing.

• World Bank’s International Poverty Line: This is a widely used standard, currently set at $2.15 per person per day (adjusted for purchasing power parity). People living on less than this amount are considered to be in extreme poverty.
• National Poverty Lines: Many countries establish their own poverty lines based on the local cost of living. For example, a country might set a poverty line at a specific income level that reflects the minimum amount needed for an acceptable standard of living in that country.

2. Relative Poverty

Relative poverty measures poverty in relation to the income distribution of a specific country or society. People are considered to be in poverty if their income falls below a certain percentage of the median household income.

• EU Relative Poverty: In Europe, for example, a common measure is if a person earns less than 60% of the median income in their country, they are considered at risk of poverty.

Other Measurement Approaches:

• Multidimensional Poverty Index (MPI): This method looks beyond income and considers multiple factors such as education, health, and living standards. It combines different dimensions to create a fuller picture of poverty. This is useful for capturing poverty in regions where income data may not tell the whole story.
• Consumption or Expenditure-Based Measures: Instead of income, some poverty rates are based on household consumption or expenditure. This method assesses how much a household spends, which can provide a clearer picture of their access to goods and services.

Poverty rates are typically measured using various indicators that assess individuals' or households' ability to meet basic living standards, such as food, shelter, healthcare, and education. The two most common approaches to measuring poverty rates are:

1. Absolute Poverty

This approach defines poverty based on a fixed income threshold, often referred to as the "poverty line." Anyone earning below this threshold is considered to be living in poverty. The poverty line is usually set based on the cost of basic necessities like food, housing, and clothing.

• World Bank’s International Poverty Line: This is a widely used standard, currently set at $2.15 per person per day (adjusted for purchasing power parity). People living on less than this amount are considered to be in extreme poverty.
• National Poverty Lines: Many countries establish their own poverty lines based on the local cost of living. For example, a country might set a poverty line at a specific income level that reflects the minimum amount needed for an acceptable standard of living in that country.

2. Relative Poverty

Relative poverty measures poverty in relation to the income distribution of a specific country or society. People are considered to be in poverty if their income falls below a certain percentage of the median household income.

• EU Relative Poverty: In Europe, for example, a common measure is if a person earns less than 60% of the median income in their country, they are considered at risk of poverty.

Other Measurement Approaches:

• Multidimensional Poverty Index (MPI): This method looks beyond income and considers multiple factors such as education, health, and living standards. It combines different dimensions to create a fuller picture of poverty. This is useful for capturing poverty in regions where income data may not tell the whole story.
• Consumption or Expenditure-Based Measures: Instead of income, some poverty rates are based on household consumption or expenditure. This method assesses how much a household spends, which can provide a clearer picture of their access to goods and services.