As the government here looks for an economic miracle, attention is increasingly turning towards Argentina. Like a phoenix, the South American nation has risen from the ashes of decades of relative decline.
Last week, the president, Javier Milei, received a political setback when the dominant Buenos Aires province voted against his party in a local election. But that was seen more as a reflection of the region being an opposition stronghold and his sister being caught up in a corruption scandal than a snub to what he has achieved. Nationally the mood remains buoyant and the trajectory upwards.
Among the major economies, Argentina was long regarded as a hopeless case. Its GDP per capita slipped behind those of other comparable nations and seemingly was destined to remain there. Everything piled in at once: fiscal indiscipline, inflation, lack of capital controls and an economic policy based on idealism rather than pragmatism. Realpolitik and with that, financial realism, were markedly absent where Argentina was concerned. The result was stagnation and volatility combining to send the country on an apparently relentless, downward path. Consistently missing was meaningful growth.
Hang on a minute, doesn’t that sound all too familiar? Perhaps some of it and especially that last part. For London, see Buenos Aires; for Sir Keir Starmer, picture Milei. They ascended to power on the back of promises to repair the public finances, address rising prices and grow their economies. They said they would fire up business and drive investment. There, alas, the similarity ends. For, while one stayed true to his words, the other has so far failed.
Like Starmer, Milei inherited a funding deficit and he has striven hard to keep it in check
Argentine inflation was far in excess of anything experienced here. Under the former president, Alberto Fernández, it hit 20 per cent annually. But with Milei at the helm, that rate has been steadily falling. Like Starmer, Milei inherited a funding deficit and he has striven hard to keep it in check. So much so that the International Monetary Fund’s executive committee gave Argentina the thumbs-up at the end of July. IMF managing director Kristalina Georgieva commended the government’s “zero-overall deficit target”, observing “it remains the key policy anchor”.
So pleased was the IMF with the performance that it agreed to unlock another round of financing. This, as speculation mounts that should Rachel Reeves fail to turn the UK around — and if her next Budget proves as disastrous as her first — she and Starmer may find themselves forced to go cap in hand to the IMF.
Right-winger Milei has also earned the praise of world leaders, among them Donald Trump, and the likes of Elon Musk. The markets approved, too.
Consumer and investor optimism, for so long absent from the Argentinian zeitgeist, has returned. The IMF expects the economy to be on track for 5.5 per cent growth this year, a figure that currently seems a pipe dream where the beleaguered UK is concerned. In short, Milei has achieved what Starmer and Reeves set out to do with their repeated talk of pursuing a “further and faster” agenda — although their boosterism has reduced noticeably of late.
Milei’s administration instituted aggressive budget cuts and spending freezes. He entered office with the ringing assertion of “no hay plata!” meaning “there is no more money” (for public spending). As a fearless Milei said: “I have a 50 per cent approval rating after carrying out the biggest austerity programme in our history. It’s a miracle, isn’t it?” His government also passed significant legislation, revealing an ability to negotiate with its opponents — contrast that with Starmer’s inability to pass his welfare reforms.
Argentina successfully implemented a tax amnesty scheme to attract undeclared banking deposits — again look at how Reeves went in the opposite direction, scrapping non-doms, slapping inheritance tax on farmers, raising employers’ national insurance and hitting private schools for VAT.
As a result, Argentina’s economy acquired a more solid footing. Inflation fell to pre-2023 levels, the economy is beginning to motor again, consumer and investor confidence have returned.
Milei’s engine for growth has been deregulation and the cutting of red tape (equally promised by Starmer) and focusing on the Argentine staple industries of farming, energy and mining, encouraging them to produce and export more. He’s coupled that with radical legislation intended solely to attract domestic and international cash, in particular the incentive regime for large investments known as RIGI, a series of inducements designed to persuade foreign and domestic investors to put their faith and money in Argentina. They are able to use “sole purpose vehicles”or SPVs, incorporated in Argentina to take advantage of fixed terms guaranteed for
30 years covering taxes, dividends and customs duties. It applies to outlays of more than $200 million in forestry, tourism, infrastructure, mining, tech, energy and steel. Put in over $1 billion and the benefits are even greater.
Business duly responded. Rio Tinto put $2.5 billion into lithium mining and a multi-company investment of $3 billion was announced for a new oil pipeline. They may not seem like much, but bear in mind there was virtually no activity previously.
As Starmer resets, he could do worse than study the Javier Milei playbook
Milei realised the importance of energy security, boosting oil and gas production, which has saved his country billions in fuel imports. This is transformative and, you suspect, far beyond the imaginations of Starmer and Reeves. But it is doing the trick and it shows how they should be thinking if they are serious about kickstarting the economy.
Milei’s aim is to protect investors from economic upheavals and give them sufficient security over the duration of a substantial piece of capital investment (imagine what Heathrow’s new runway would look like armed with that certainty). He did it too from a low power base in the National Congress. He has nothing like the substantial majority enjoyed by Labour. Versus Milei, you have to question if Starmer has not to date squandered that thumping margin and has allowed his natural caution to get the better of him.
It would be wrong to suggest Milei has found progress plain sailing. He hasn’t. The libertarian leader was dealt a blow with the local election defeat and the bond markets have reacted badly. Undeterred, he is insisting it is a blip and he will not be diverted. “Without any doubt, today we suffered a clear defeat,” Milei said. “But the economic course for which we were elected will not change. We will continue to defend fiscal balance tooth and nail.”
If only Starmer would exude the same resolve and mean it. Argentina has come on in leaps and bounds economically since the change of leader; the UK hasn’t and, worse, has moved in the other direction. As Starmer resets, he could do worse than study the Javier Milei playbook. It’s by no means perfect but there are lessons to be learned and aspects Starmer might do well to copy.
