Javier Milei is carrying out a real revolution in Argentine public finances. The president gave a lesson a few days ago in a speech on how to achieve a balanced budget. This speech, based on economic theory, now finds its practical demonstration with the eighth consecutive surplus achieved by Argentina. created by the Milei government This is the most important asset to regain market confidence, stabilize the peso, defeat inflation and put Argentina back on the path of healthy and sustainable growth (without imbalances or money printing).
A few days before confirming this surplus, Javier Milei gave a speech in which he presented the keys that allow Argentina regaining foreign confidence and balancing the accounts. Since 2010, such a long chain of monthly surpluses has not been achieved in the country. President Javier Milei delivered the speech presenting the 2025 budget to Congress on Sunday.
Milei explained that “the first thing to understand is that when governments want to spend, and spend compulsively, and do not give them the necessary margin to continue raising taxes, as is the case in Argentina, the only way to pay the bill is to borrow money. or print it at the Central Bank. Let us briefly recall what has been the historical methodology of our ruling class, since politicians do not understand budgetary restriction and do not want to stop spending, they generate a deficit, to cover this deficit first. What they do is get into debt, but since they do not make the necessary adjustment, the debt becomes unpayable and then they default. Thus, we become the largest serial defaulter (the country that has defaulted on its debt the most times) in the world. world, but the default is not trivial. fall into default This produces the already famous capital flight from Argentina.“.
Milei’s lesson for controlling the deficit
Argentina has run a budget deficit (spending more than it earns) in 113 of the last 123 years. Milei explained in his speech that “those ten years we didn’t have a deficit, it’s because everything had already exploded and we were in default. That means that for almost 100% of our modern history, governments have failed to respect this fundamental truth of economics and have passed the bill on to ordinary Argentines over and over again.” This also means that this will be the first year of budget surplus without default in Argentina’s history.“.
SO, Javier Milei He is changing the way his government acts and the way the vast majority do. Normally, when budgets are approved, politicians usually set a ceiling or a level of spending and then see how they manage to include everything that is necessary to try to cover it. It is normal that this item of expenditure if this is accompanied by an intrinsic public deficit from birth. Milei assured that they would act in the other direction, precisely, They will first calculate how much Argentina earns and then they will see how much it can spend. always from the surplus or at least from the budget balance.
On the other hand, the libertarian politician clarified that as the year progresses, if tax collection is not sufficient or remains lower than initially expected and the accounts begin to flirt with deficit, There will be no choice but to cut public spending. until the public accounts are balanced again.
If there is more money… it will be to reduce the debt
Finally, if the opposite happens and tax collection is better than expected, this money will be used to repay debt or reduce the money supply; if it is a structural increase in public revenues, taxes will be reduced: “Looking at revenues now, when the increase in revenues is temporary, the State will be able to save, absorb pesos or repay debts”, which will involve the destruction of pesos and therefore the revaluation of the peso or the cancellation of the debt. And if economic growth is permanent and, therefore, the increase in income is structural, the State will be able to return to society this greater collection of tax reductions, as we have committed to do,” says the Argentine president.
The recipe works: there are already eight surpluses
In total, last August, Argentina managed to string together eight consecutive months of primary budget surplus and return to the positive balance of the financial result, thanks to the severe adjustment plan launched by President Javier Milei. The country recorded a primary budget surplus of 899.660 million pesos (914.7 million dollars) in August, compared to a negative result of 36.964 million pesos for the same month of 2023, official sources reported Thursday.
On the other hand, the financial result (including payment of debt services) was positive in August for 3,531 million pesos, compared to a deficit in the same month last year for 384,505 million pesos and showing a recovery after closing last July with a deficit of 600,957 million pesos. “With this result, the Ministry of Economy continues to strengthen its commitment to fiscal order“, consolidating the financial balance and, in this way, eliminating the financing needs that, until last year, were covered mainly by monetary emissions,” official sources said.
During the first eight months of the year, Argentina managed to accumulate a primary surplus of 8.7 trillion pesos, compared to a deficit in the same period of 2023 of 2.2 trillion pesos.. The financial surplus accumulated in the first eight months of the year amounts to 1.9 trillion pesos, compared to a negative balance of 4.3 trillion pesos for the same period of 2023. In the first eight months of the year, the national public sector accumulates a primary surplus equivalent to 1.5% of GDP and a financial surplus of 0.4% of GDP, according to official sources. “Since 2010, no financial surplus has accumulated in the first eight months of the year,” sources from the Ministry of Economy point out.
The change in trend observed this year is due to to the severe budgetary adjustment plan launched by Milei after he came to power last December. Since the beginning of the year, primary spending has been reduced by 30% in real terms, according to the report. The problem is that this adjustment plan has led to a recession from which Argentina is only just beginning to recover.
The biggest decreases were in capital expenditure (-81%) and current transfers to the provinces (-70%), while economic subsidies were reduced by 36%. According to the Government’s projections contained in the 2025 Budget project, AArgentina would close 2024 with a primary surplus equivalent to 1.5% of GDP and next year it would reach a positive balance equivalent to 1.3% of GDP.
