The light and shadows of Argentina’s “chainsaw reform”

As tariff talks with Washington drag on, the Lee Jae Myung administration is also pushing through bills that increase burdens on business under the banner of “reform.” Many wonder where such confidence comes from.

Suh Kyoung-ho

The author is an editorial writer at the JoongAng Ilbo.

Trade negotiations between Korea and the United States remain deadlocked, with Washington pressing what Seoul views as unreasonable tariff demands. Against this backdrop, a foreign news report drew attention: the United States was offering Argentina a $20 billion currency swap. Only months ago, Argentina had been praised for structural reforms. How did the country slide back into crisis so quickly?

The turning point came in December 2023, when Javier Milei, a libertarian economist, became Argentina’s president. At the time, Argentina faced annual inflation of 211 percent, a collapsing peso, and a chronic shortage of foreign exchange. The government tried to stabilize prices and the currency with strict controls on imports, exports, consumer goods, and foreign exchange. Milei argued that state intervention lay at the root of the problem. He launched sweeping market-oriented reforms, cutting subsidies and welfare spending, consolidating government ministries and pushing fiscal austerity.

Elon Musk holds up a chainsaw he received from Argentina's President Javier Milei, right, as they arrive to speak at the Conservative Political Action Conference, CPAC, at the Gaylord National Resort & Convention Center, Thursday, Feb. 20, 2025, in Oxon Hill, Md. [AP/YONHAP]

His pledge of “chainsaw reform,” a symbol of his election campaign, was realized. The economy, long drained by populist Peronism, showed early signs of recovery. Inflation dropped to single digits. Fiscal accounts returned to surplus. With no deficits to cover, the government no longer needed the central bank’s printing press. Milei’s reforms looked like a decisive break from the populist economics that had dominated Argentina since Juan Perón.

But as The Economist warned late last year, his success carried risks. First was the potential revival of Peronism. Lower inflation could not mask slow growth, high unemployment and deepening poverty. If public patience wore thin, Peronist politicians could return. Second was an overvalued peso. Under the current managed float system, the central bank was burning scarce reserves to defend the exchange rate ceiling. Third was Milei’s style. He courted conflict by pushing through controversial judicial reforms, clashing with the Supreme Court, and provoking unnecessary battles on climate change and abortion.

The immediate crisis erupted after the ruling party suffered a major defeat in provincial elections earlier this month. Markets panicked at the prospect of Peronism’s return. The peso slid sharply, while stocks tumbled. Milei, nicknamed “El Loco,” or “the madman,” faced his sharpest test since taking office.

Markets calmed only after forceful intervention by U.S. Treasury Secretary Scott Bessent, who backed currency swaps and government bond purchases. This unusual step reflected Washington’s interest in bolstering Milei ahead of Argentina’s midterm elections in late October. Yet the setback revealed the political cost of austerity. Fiscal tightening and high interest rates to stabilize the peso had deepened the recession. As household incomes shrank, memories of generous Peronist handouts began to stir again.

American media such as the Wall Street Journal have floated dollarization as a solution. Adopting the U.S. dollar as legal tender could curb inflation and stabilize markets, though at the price of surrendering monetary policy. Milei campaigned on dollarization and the abolition of the central bank, but has yet to deliver.

Argentina’s decline offers a cautionary tale. The country was once prosperous enough to draw Italian migrant labor, a memory captured in the Japanese animated series “3000 Leagues in Search of Mother,” familiar to many Koreans. Since Perón took power in 1946, Argentina has defaulted nine times and turned to the International Monetary Fund for assistance 23 times, most recently this April.

U.S. Secretary of the Treasury Scott Bessent leaves the Economy Ministry building, days after Argentine President Javier Milei’s administration sealed a new loan deal with the IMF, in Buenos Aires, Argentina on April 14. [REUTERS/YONHAP]

For Korea, now the world’s 10th-largest economy, Argentina’s troubles may feel distant. Yet its story shows how economic collapse can prove irreversible and how difficult it is to escape a debt trap once inside. The IMF recently advised Seoul to improve its fiscal discipline.

As tariff talks with Washington drag on, the Lee Jae Myung administration is also pushing through bills that increase burdens on business under the banner of “reform.” Many wonder where such confidence comes from. Others watch uneasily, worried that Korea might ignore Argentina’s hard lessons.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.