Nearshore Americas

Breakdown: Argentinian Businesses Have High Hopes for Milei’s ‘Shock Therapy’

The radical economic policies of Argentinian President Javier Milei, while controversial and even scary in the eyes of some experts, seem to be appealing to the sense of hope among entrepreneurs in the country’s services sector.

A recent survey by Argencon –an industry organization that gathers some of the most relevant players in Argentina’s knowledge economy– indicates that business leaders expect better fortunes for their organizations once President Milei’s so-called “shock therapy” sets in, transforming the country’s economy.

High hopes: 48% of the service companies surveyed by Argencon expect service exports to increase year-over-year by 10% “once the objectives of [Milei’s] economic policy achieve consolidation.”

  • 55% see employment growing by 10% also once Milei’s economic plan reaches “consolidation”.
  • 11% of the tech services companies surveyed expect employment in their sector to grow at least 20%.
  • Employment in Argentina’s knowledge economy grew less than 6% in the past two years.

What’s stopping it?: 32% of respondents identified a “lack of unification/normalization” in the currency markets as the main obstacle for the further development of the knowledge economy in Argentina.

  • 22% see regulatory complexity as the most challenging issue
  • 18% pointed to the tech talent shortage as the most pressing obstacle

In short: “Results confirm that, once the ceiling is shattered in the local currency markets, foreign exchange rates stabilize, regulations are simplified and labor market reforms are announced, the knowledge economy [of Argentina] will see a considerable improvement in its capabilities to be internationally competitive,” Argencon summarized in its report.

For your consideration: Argencon underscored that “the answers [to the survey] were provided under the presumption that the objectives established by the new economic plan [of President Milei] will prosper.”

Explainer: Milei’s brand of shock therapy can be put under the umbrella of radical economic liberalization for Argentina.

  • The president promised to make away with limits imposed on US dollar purchases, which should lead to a dollarization of Argentina’s economy.
  • He also plans to eliminate export taxes.
  • Milei also aims for an extreme reduction of public spending. This contemplates shutting down government projects, a massive slashing of the government’s payroll and even the dismantling of what he has identified as unnecessary and burdensome government organizations, including Argentina’s central bank.

What’s expected: When asked about the potential of Milei’s economic plan to remove the obstacles mentioned above, 31% stated they see the proposed changes as “significant and/or structural”.

  • 59% said it was too soon to tell.
  • Only 6% said Milei’s reforms were either “marginal” or “not focused on [Argentina’s] main economic problems.”

The state of things: Inflation remains Argentina’s gravest economic pain point. The inflation rate surpassed 200% in 2023. Expectations for 2024 put it more than 60 percentage points below the year prior, but still in triple digits. For 2025, it is forecast to fall to 45%-50%.

  • Forecasts for Argentina’s GDP growth remain around 2.8% for 2024 and around 5% for 2025.
  • IT services exports dropped 6.8% in 2023. The sector represents 30% of Argentina’s overall services exports. 
  • The drop in IT services exports was blamed on widening foreign exchange rates, a cooling of global demand for services and regulations that impair the competitiveness of local companies against foreign firms which can pay directly in US dollars.

A quote: “All of those involved in an activity which isn’t as heavily regulated, as is the case of software […] feel like the State could be an obstacle because it won’t allow them to operate freely,” commented Carlos Pallotti, Argentina’s former Undersecretary of Productive and Tech Services and a Nexus Illuminate Award winner, in a previous interview with NSAM.

  • “I do believe there’s a sensation that [Milei’s government] will eliminate certain locks that are making business operations more difficult today,” he added. 

Insider’s perspective: Softtek’s CEO Blanca Treviño told Bloomberg that her company is considering opening a big office in Argentina. The investment is on hold, however, because Softtek’s leadership is still “trying to figure out the meaning behind Milei’s policy changes”.

NSAM’s Take: Argencon’s survey speaks of perceptions and hopes for the future, not reality. Nevertheless, the fact that Argentina’s service exporters feel so optimistic about the radical changes planned by President Milei speaks of their frustration with the status quo in the years prior.

Argentina’s service exporters have done quite well in the post-COVID years when compared to other segments of the country’s economy. Even then, Argencon’s results point to a feeling of yet unfulfilled potential. Demand might have cooled down over the past couple of years, but the hunger for digital and tech services remains strong. Argentinian companies probably fear missing out on a chance to consolidate themselves as bona fide global players. 

Of all the aspects of Argentina’s economy, the currency market is regarded as the most problematic for foreign investors and exporters alike. The government has kept a very tight limit on the amount of US dollars individuals and companies can buy and/or receive, a situation that has made life very difficult for companies and even for freelance professionals trying to sell their services directly to clients in the US or other developed economies.

Economic and market analysts remain skeptical –or worried– about Milei’s plan to liberalize the currency market and his strategy of dollarization. From the results of Argencon’s survey, however, one can glimpse a scenario in which those policies hit segments of the economy differently. For service exporters, results might be particularly positive.

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As a considerable portion of respondents stated, it’s too soon to tell whether Milei’s shock therapy will heal Argentina’s economy. What matters for now is how foreign investors feel about Milei’s plans. What’s been told to the local and regional press points to optimism with a healthy undercurrent of caution. 

If the locals’ optimism turns out to be contagious, we might be seeing a new influx of foreign capital into Argentina even as the country’s economy convulses under shock therapy.

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

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