Argentina's shock therapy worked - but Australia should be wary of copying it
Milei's shock therapy stopped a currency collapse — but the social cost was 57% poverty. What that actually means for Australian fiscal debate.
Javier Milei took office in December 2023 promising to take a chainsaw to Argentina's state, and by most narrow macroeconomic measures he delivered. Monthly inflation, which had been running above 25 per cent, collapsed. The peso stabilised. A primary fiscal surplus appeared, the first in over a decade. His party then won a landslide in the October 2025 midterms, which suggests at least some Argentines believe the pain was worth it. That is the version of the story that has been circulating in certain corners of Australian economic commentary as a kind of proof of concept: austerity works, the will just needs to be there.
Argentina's crisis was a currency collapse — not an inflation problem
The first thing to understand about Argentina's situation is the severity of the starting point. By the time Milei was elected, Argentina had experienced decades of currency crises, serial sovereign defaults, and a central bank that was functionally printing money to cover fiscal deficits. Annual inflation was tracking toward 300 per cent. The peso was collapsing. This was not a garden-variety developed-economy inflation problem driven by supply-chain disruption and excess fiscal stimulus. It was a currency and sovereign credibility crisis of a kind Australia has not faced at any point in its modern economic history.
That distinction matters because the treatment is, in part, a function of the disease. Extreme fiscal consolidation can arrest hyperinflation precisely because hyperinflation is, at root, a fiscal problem: a government spending beyond what it can tax or borrow, with the shortfall monetised. Shut the deficit, and you remove the fuel. The logic is coherent. But the mechanism requires accepting the transitional costs, and in Argentina those costs were brutal. Poverty peaked above 57 per cent in early 2024. The economy contracted sharply. Unemployment rose. By mid-2025 poverty had begun falling again, and inflation had eased to levels Argentines had not seen in years. Whether the long-run trajectory holds depends on whether Milei can sustain the fiscal discipline after the political pain has bought him goodwill, and whether structural reforms can produce genuine growth rather than just a smaller state grinding through a smaller economy.
The lesson from Argentina is not that Australia should replicate the medicine. It is that waiting until the disease is severe enough to require that medicine is the outcome to avoid.
Australia's inflation is real - but the mechanism to fix it is different in kind
Australian policymakers watching this should note a few things. First, Australia's inflation problem, while persistent and genuinely damaging to household budgets, is not of the Argentine variety. It is driven by a combination of pandemic-era fiscal stimulus, supply disruptions, and sustained government spending that continued well after the emergency had passed. The Reserve Bank has spent the better part of two years trying to squeeze that out through rate rises that have reached levels not seen since 2009, as we have covered previously. The mechanism is painful and slow, but it is calibrated - not a cliff face.
Second, the social tolerance required for the Argentine model is specific to Argentine conditions. Milei's voters accepted a poverty rate above 50 per cent as a necessary transitional cost because the alternative, continuing hyperinflation, was destroying savings, wages, and ordinary economic life in real time. Australians facing inflation in the 3 to 5 per cent range, even with cost-of-living pressures that are genuinely acute, are not at that threshold. The political economy is simply different. A government that attempted Argentine-scale spending cuts in Australia would almost certainly be removed before the stabilisation phase arrived, which means the transitional costs without the benefit.
Third, institutional context is everything. Argentina's crisis was partly a crisis of institutional credibility: a central bank that could not be trusted, a fiscal framework that had no anchor, a currency that nobody wanted to hold. Australia has a credible independent central bank, a floating currency backed by a functioning tax system, and access to deep capital markets. The tools available to manage inflation here are different in kind, not just in degree.
What Argentina actually proved - and what it didn't
None of this means Australian fiscal policy has been well-managed. The gap between claimed savings and actual spending trajectories has been a recurring theme in this publication, and the pressure on the RBA to do the work that fiscal restraint could be sharing is real. But the lesson from Argentina is not that Australia should replicate the medicine. It is that waiting until the disease is severe enough to require that medicine is the outcome to avoid.
Milei's experiment is not finished. Argentina may yet stabilise and grow. Or the political coalition sustaining the cuts may fracture, subsidies may return, and the cycle may begin again. What Argentina has demonstrated is that extreme fiscal consolidation can stop a currency collapse - not that it is a superior general model for managing public finances. Those are different claims, and collapsing them together is how a dramatic case study becomes a misleading analogy.
Frequently Asked Questions
Did Milei's spending cuts actually fix Argentina's inflation?
By most narrow macroeconomic measures, yes — monthly inflation collapsed from above 25 per cent and a primary fiscal surplus appeared for the first time in over a decade. But the cuts pushed poverty above 57 per cent at their peak and triggered a sharp recession, so the stabilisation came at an extraordinary social cost.
Why can't Australia just copy what Argentina did to fight inflation?
Because the diseases are different. Argentina's inflation was driven by a central bank printing money to cover deficits — a currency and sovereign credibility crisis running at nearly 300 per cent annual inflation. Australia's inflation was driven by pandemic stimulus and supply disruption, and is being managed by a credible independent central bank through interest rate adjustments, not emergency fiscal surgery.
What was Argentina's poverty rate under Milei's reforms?
Poverty peaked above 57 per cent in early 2024 as the spending cuts took hold. By mid-2025 it had begun falling again as inflation eased, but the transitional cost was severe by any measure.
Why did Milei win the 2025 midterms if his policies caused a recession?
His party's October 2025 midterm landslide suggests a significant share of Argentines judged the stabilisation — collapsing inflation, a stable peso — as worth the pain. Whether that reflects settled policy endorsement or short-term momentum is harder to determine.
Is Australian fiscal policy actually well-managed?
The article does not make that case. It notes a persistent gap between the government's claimed savings and actual spending trajectories, and argues the Reserve Bank has been left to do work that fiscal restraint should be sharing. The point is not that Australia is well-governed — it is that the problems here do not require Argentine-style medicine.