Riot police clash with demonstrators during a protest against the government of President Javier Milei in Buenos Aires on March 12, 2025. (Photo by Emiliano Lasalvia / AFP) (Photo by EMILIANO LASALVIA/AFP via Getty Images)
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Argentina’s economic troubles are bad news for our national security.
President Javier Milei came to power nearly two years ago on a radical platform of free-market reforms. Argentina was suffering a crippling inflation. Its central bank was madly printing money to cover the massive deficits of an obscenely-sized government.
Milei was an outspoken outsider who unashamedly espoused the virtues of capitalism. To the shock of the corrupt political establishment, he won a stunning upset in the presidential election, promising to slash the size of the public sector and, most boldly, replace the discredited peso with the U.S. dollar. The central bank would be shut down.
Milei’s economic success is crucial because it would be a model that would discredit the far-left authoritarian trend in Latin America and much of the rest of the world.
As president, Milei wasted no time in taking a chainsaw to the public sector, slashing spending and sharply shrinking the size of the bureaucracy. The budget was quickly brought into balance, and inflation plummeted. The economy came back to life.
But now Milei is in big trouble. His influential sister is involved in a corruption scandal. Growth is slowing, and inflation is ticking up. Milei’s party suffered a thrashing in the large province that includes the capitol, Buenos Aires. Riots and demonstrations are unfolding, egged on by an opposition smelling blood.
In next month’s critical congressional elections, the opposition could win enough seats to destroy Milei’s reforms. As a result, the peso has come under attack. The uncertainty has stalled business investment.
Milei has asked the U.S. for a bailout of $20 billion, and the Trump Administration says it is ready to help out. The White House doesn’t want to see a free-market friend fail. The prospective bailout has eased attacks on the peso.
Unfortunately, all this ignores the profound mistake Milei has made from day one: not replacing the peso with the dollar. With the possible exception of Zimbabwe, no other country has so routinely trashed its currency over the years as Argentina.
The Latin nations of El Salvador and Ecuador successfully dollarized their economies in the early part of this century. Even their left-wing governments, when in power, haven’t brought back their old currencies.
The blunt truth is this: A government can get things right on spending, regulation and taxes, but if it doesn’t achieve a stable currency, its economy will suffer.
Milei, unfortunately, was persuaded to listen to the IMF, an agency that routinely prescribes inflationary currency devaluations. Incredibly, people who should know better believe that devaluations are essential for economic stabilization, which is like saying the cure for pneumonia is throwing patients into the snow.
Milei’s salvation is clear: Junk the peso. During the transition period, the soon-to-be-shuttered central bank should buy pesos to reduce the money supply, which would curb any inflation resurgence.
Then Milei should go for serious tax reform by introducing a low-rate flat tax. This is what the inflation-plagued nations of Lithuania, Latvia, Estonia and Bulgaria successfully did in the 1990s. He should also permanently get rid of Argentina’s self-defeating export taxes.
Meanwhile, the Trump Administration should cut tariffs on Argentina and negotiate a free-trade agreement.
Free markets work when you let them. Always. But even our current administration is in danger of losing sight of this truth.
Source: https://www.forbes.com/sites/steveforbes/2025/09/30/argentinas-economic-troubles-are-bad-news-for-our-national-security/
