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Means matter

The costs, however, are brutal. Battered by inflation, an estimated 50% of Argentines are in poverty, up from 38% in September. In real terms salaries have been set back 20 years, calculates Invecq, another consultancy. Purchases of prescription medicines have fallen by 7%. Total pharmacy sales are down by 46%. Sales volumes at small and mid-sized firms fell by almost 30% in January, year on year. The economy will shrink by 4% this year, reckons Barclays, a bank.

Such hardship can become dangerous for presidents, literally. In 2001 one fled the Casa Rosada, the presidential workplace, in a helicopter for fear of violent protesters. Yet Mr Milei’s approval ratings remain remarkably high, at around 50%, despite the economic pain. This is mostly because he has succeeded in blaming the caste for putting Argentina in this mess.

Still, Mr Milei’s first 100 days have revealed serious problems. Beyond the pain, the economic plan is riddled with uncertainties. One risk is the exchange rate. Trying to slow inflation, the government is devaluing the peso by 2% each month. Yet with monthly inflation much higher than 2% that is probably less than is necessary. Alas, a faster crawl or sudden sharp devaluation would cause more inflation.

Argentina will inevitably soon have to switch to a new monetary and foreign-exchange regime. The question is when—and to what regime. Mr Milei’s plan is to eliminate capital controls and unify the exchange rates. But will the government introduce an orthodox peso monetary programme or will it try to dollarise the economy? Mr Milei’s campaign promise to dollarise has become vague since he took office. The government now talks more about “currency competition” (allowing transactions in either dollars or pesos). Yet when asked if dollarisation is off the table, Pablo Quirno, the secretary of finance, equivocates. Dollarisation is “one way to basically bury the [money] printing machine”, he says. It is “more a moral discussion”. The uncertainty is already causing jitters among investors. The government has also hinted that it will seek a new IMF programme, perhaps worth $15bn, but that too may be difficult without clearer plans.

Reducing inflation by forcing a recession will cause other problems. “It’s not attractive to invest in a country where the recession is a key ingredient of its monetary policy,” says Eduardo Levy Yeyati of Torcuato Di Tella University in Buenos Aires. What’s more, he adds, when growth returns inflation could accelerate.

Last, these fiscal surpluses may prove hard to sustain. February’s surplus was already smaller than January’s and the recession is hitting tax revenues hard. One big saving was on energy subsidies, but much of that was only deferred, not cancelled. Provincial governors protested angrily, including in the courts, at the cuts to their transfers. Although the current pension formula is helping the government reduce spending, as inflation falls it will eventually have the opposite effect.