Milei's Second Year: The Arithmetic of Shock Therapy and the Politics of Pain Tolerance
Javier Milei entered his second year in office in December 2025 with a fiscal surplus — the first Argentina had recorded in twelve years — and an inflation rate that, by March 2026, had fallen to 47 percent annually: still approximately ten times the global average, but a precipitous descent from the 211 percent that Milei inherited from the Massa-Kirchner economic collapse of late 2023. In Buenos Aires, this is the number that fills the screens on TN and LN+, the media properties owned by the Clarín Group that have been, in practice, Milei's most consistent institutional supporters. Forty-seven percent. The number has become the policy.
What the number conceals is the distribution question: who bore the cost of getting inflation from 211 to 47, and whether what has been gained is a sustainable macroeconomic stabilisation or the first phase of a liberalisation cycle that has, across thirty years of Latin American IMF-adjacent experiments, a predictable second act. Milei's agreement with the IMF — announced in late March 2026 and involving a $20 billion extended fund facility with a 2029 repayment horizon — is the instrument around which this question resolves. The IMF board approved the program on 11 April. The conditionalities attached require sustained primary fiscal surplus, further deregulation of labour markets, and a managed flotation of the peso that formally ends the "crawling peg" exchange rate regime that has been the centrepiece of Economy Minister Caputo's anti-inflation architecture.
The theoretical frame that the wire desks are not applying — because it does not appear in IMF staff reports — is Enrique Dussel's critique of Latin American structural adjustment: the observation that shock therapy programs, by treating the economy as a set of price signals to be corrected rather than as a social relationship between classes with differential capacity to absorb correction, systematically distribute the transition costs onto those least able to bear them, while distributing the transition benefits — restored financial market confidence, peso stability, access to international capital — onto those with financial assets. The arithmetic is not neutral.
The Fiscal Surplus: What It Cost and Who Paid
The primary fiscal surplus that Milei's Economics team achieved in 2025 — roughly 1.9 percent of GDP — came from three principal sources: a reduction in real public-sector wages (salaries were frozen while inflation ran, producing a real wage decline of approximately 15 percent in the public sector over 2024); cuts to energy and transport subsidies that had previously held utility bills below market cost for Argentine households; and a compression of public investment, particularly in infrastructure, education and social programs.
These are not abstract fiscal line items. They translate, in the experience of Argentine households, to specific material outcomes. The subsidy cuts produced utility bill increases of between 300 and 600 percent over eighteen months for residential consumers, implemented in staggered waves to avoid triggering a single visible shock. The INDEC (national statistics institute) household expenditure survey for Q4 2025 shows that the average Buenos Aires household is now spending 38 percent of income on food, up from 29 percent in 2023 — driven by both residual inflation in the food basket and the compression of real income from public-sector wage freezes, pension delays and reduced social transfers.
The poverty rate — measured by Argentina's official methodology, which uses an updated basic food basket — hit 52.9 percent in mid-2024, its highest recorded level since the 2001-2002 convertibility crisis. By Q4 2025 INDEC reports it had fallen to 38.1 percent, a substantial improvement that Milei's government presents as the clearest evidence of recovery. What the headline figure omits is the composition: poverty fell most rapidly among the employed formal-sector urban population, whose real wages have begun recovering as inflation slowed. It fell much more slowly among the informally employed — roughly 45 percent of Argentina's labour force — whose incomes do not participate in the formal wage-adjustment mechanism and whose purchasing power continues to be eroded by inflation that, at 47 percent, remains devastating for anyone without a salary indexed to RIPTE (the remuneration index of stable registered private workers).
The IMF Deal and Its Second-Act Logic
The $20 billion IMF extended fund facility announced in late March 2026 has been described by Milei and Caputo as Argentina's "graduation" from financial isolation — the moment when international capital markets accept that Argentina is a creditworthy borrower again after the 2020 default. This is broadly true as a financial market statement. It is not obviously true as a development statement.
Argentina's IMF relationship — the country has had 23 programs since 1956, more than virtually any other economy — has a documented structural pattern. The initial program period produces fiscal consolidation, inflation reduction and restored market access on the strength of front-loaded conditionality compliance. The middle period tests whether the domestic political economy can sustain the adjustment — whether labour markets can absorb the deregulation, whether the newly managed peso exchange rate can withstand speculative pressure, whether social tolerance for austerity survives a recession. The late period, historically, has involved either a full-scale reversal (Argentina 1989, 1995, 2001) or a renegotiation under duress.
What is different in 2026 that might break this pattern? Milei and his supporters point to three factors: the fiscal surplus is genuine and was achieved without the accounting tricks that previous Argentine governments used to meet IMF targets on paper while running structural deficits; the exchange rate unification — replacing the multiple currency systems (blue dollar, MEP dollar, official dollar, CCL) with a single managed float — reduces the distortion that previously enabled currency arbitrage at state expense; and the scale of the political mandate, with La Libertad Avanza performing strongly in October 2025 midterms, suggests the coalition can withstand political pressure from organised labour and Kirchnerist opposition.
What is not different: Argentina still has no domestic capital goods industry capable of producing the machinery, energy infrastructure and transportation equipment it needs for sustained growth without dollar imports. It still runs a current account that depends on agricultural commodity export surpluses — soybeans, primarily — to generate the dollars it needs to service its debt. And the IMF conditionality, which requires peso flotation and labour market deregulation, will test precisely the population segments — informal workers, pensioners, provincial public-sector employees — whose tolerance Milei has been managing carefully through the first phase of adjustment.
Galeano's Frame: The Rent That Leaves
Eduardo Galeano's Open Veins remains the most cited and most actively resisted analytical frame for understanding Argentine political economy, precisely because its central argument — that Latin American underdevelopment is not a natural condition but a produced one, the result of economic structures that extract surplus from the periphery and concentrate it at the core — maps uncomfortably onto the IMF relationship itself.
Argentina's agricultural surplus — the soybeans and corn and beef and sunflower oil that generate the dollars the country needs — is extracted from the pampas under a legal-financial architecture that routes the dollar proceeds through Chicago commodity brokers, Swiss trading companies and New York correspondent banks before any of it reaches an Argentine public account. The export retenciones (withholding taxes) that Kirchnerism used to capture a portion of this rent for social spending are precisely what Milei has reduced — his libertarian philosophy views the retenciones as market distortions; the structural analysis views them as the mechanism by which a resource-abundant country attempts to retain some of the value it produces.
The IMF deal, from a Galeano-adjacent structural perspective, is the formalization of the circuit: Argentina restores its creditworthiness (in dollars), regains access to international capital markets (in dollars), services its debt (in dollars) from agricultural commodity exports priced on Chicago exchanges (in dollars), while the dollar revenue that doesn't service debt flows to reactivate consumption of imported goods that Argentine industry cannot produce. It is not a conspiracy. It is a structure. It has reproduced itself across twenty-three IMF programs because the domestic political economy of Argentina has never, in any sustained way, generated the manufacturing capacity and export diversification that would make the agricultural rent circuit less decisive.
Milei's answer to this is libertarian in its logic: deregulate, privatise, allow price signals to allocate resources, and trust that capital will flow toward productive investment when the state stops distorting it. The historical track record of this answer in Argentina — 1991-2001 convertibility, 1976-1983 military dictatorship's financial liberalisation — is not encouraging. But the historical track record of the alternative — Peronist industrialisation, Kirchner-era commodity boom spending — is also not encouraging: it produced extraordinary growth during the commodity supercycle and extraordinary collapse when the supercycle ended.
The Political Arithmetic and the 2027 Horizon
Milei's political survival depends on the timing of the adjustment pain relative to the electoral calendar. The 2027 presidential election is thirty months away. For Milei's recovery narrative to hold, real wages must demonstrably recover by mid-2026, poverty must continue falling at its current rate, and inflation must reach the single-digit target (his team has pencilled in 25 percent by year-end 2026) without the peso flotation producing a new depreciation spiral.
The risk scenario — which CELAG, FLACSO and CONICET economists have modelled in various forms — involves the peso flotation producing a devaluation that re-ignites inflation in the tradeable-goods sector, which would undo the real-wage recovery gains and trigger the organised labour response that the CGT (Argentina's main trade union confederation) has been restraining. The CGT called a general strike in May 2024 and another in September 2025; it has thus far declined to escalate to indefinite strike action, calculating that confrontation while inflation is falling and Milei's approval ratings remain above 50 percent is politically losing. If inflation ticks up, that calculation changes.
The IMF, for its part, has approved the program while inserting language about "adequate social protection for the most vulnerable" that is standard boilerplate — the same language appears in the 2018 stand-by agreement — and has zero enforcement mechanism. If Milei cuts social spending to meet primary surplus targets, the IMF will note it and continue disbursing.
The question the wire desks ask is whether Milei is "working." The question the structural analysis demands is: working for whom, and over what time horizon. Inflation at 47 percent instead of 211 percent is working for anyone with dollar-denominated savings, financial assets and stable formal employment. It is not yet working for the 38 percent of Argentines in poverty, the 45 percent in informal employment, or the pensioners on fixed ANSES benefits. The arithmetic of shock therapy is always a distributional arithmetic. The number on the screen is not the policy. The distribution of the pain is the policy.
Monexus ran the INDEC household expenditure numbers against the official poverty rate and found the gap the wire consensus missed: inflation is falling, but food's share of the household budget keeps rising. Those are not the same story.