Milei and real wages in Argentina

I was interviewed by Max Jerneck for his podcast, and he alerted me to this figure (see below), which apparently come from the Universidad Francisco Marroquín in Guatemala, that has made the rounds, and has been used by right-wing think tanks.

If you were to believe this, real wages fell after Milei's assumption. This is obviously sheer ignorance, or, more likely, an attempt to misinform and create doubts about the real effects of his policies. I had read a recent report by Centro de Economía Política Argentina (CEPA), and Julia Strada was very nice sending me the data for their own calculations based on the official INDEC data (note that this is not the issue, real wages dd fall, and recovered somewhat, but are below the initial level).

The problem with the graph, is that it starts with the line between Milei and the previous government in a way that seems that all the fall was before he was inaugurated in December 10, 2023. Arguably the problem comes from the fact that Milei started in December, but part of that month was still under the presidency of Fernandez. And with high inflation wages would be falling all the time, until a readjustment. This can be sorted out if we knew what caused the acceleration of inflation, and the rapid collapse of real wages, as a result of that. And we do, since inflation accelerated with a massive maxi-devaluation of the peso.

My graph below shows the real wage, with essentially the same trajectory, and the nominal exchange rate, which was depreciated by 100% (devalued by 50%), going from 400 pesos per dollar or so, to about 800 (left side) right after Milei's inauguration. I draw the line at that event, the depreciation of the peso.

As it can be seen, the depreciation of the nominal exchange rate, which accelerated inflation from about 12% to more than 25% in monthly terms (that is, it doubled inflation), led to a collapse of real wages. Most of the collapse (almost all) was after his policy decision to devalue the official rate. So wages are increasing, but from a low base, and that was caused by the current government.

Are we on the verge of a debt crisis?

This was my presentation at the Political Economy Research Institute (PERI) last summer. I was supposed to revise it, but never found the time. So it is now available on Substack. Fundamentally says that the current situation is very different than the debt crisis of the 1980s, and the period between the Tequila, in 94/95 and the Argentine Convertibility default in 2001/02.

Podcast on the first year of Milei's government in Argentina

PS: A comment about it appeared in a recent Guardian editorial. There is too much optimism about Milei 'success' in containing inflation, but also a lot of misunderstanding why he managed, and whether it is sustainable.