Report Nº: 106312/04/2024
The high poverty rate in Argentina is a chronic phenomenon. Its main cause is the prevailing consensus for decades sustaining wrong public policies. Milei broke this inertia with disruptive ideas. However, he needs to develop more technical and political capabilities to implement them.
According to INDEC, poverty in the second half of 2023 reached 41.7% of the population. A level similar to that of the 2nd semester of 2020 when the lockdown due to the pandemic left family budgets exhausted. The pandemic increased poverty in all countries, but Argentina shows the atypical fact that, once the pandemic is over, it maintains the same rate of poverty. Even more paradoxical is that the extreme poverty rate reached 11.9% of the population, higher than the 10.5% during the pandemic.
This social degradation occurred in the context of increasing State intervention. For example, the welfare monetary transfers of the national State multiplied by 4 in real terms between 2019 and 2023. According to the Ministry of Economy, in 2019 the welfare transfers represented 0.7% of GDP, while in 2023 they amounted to 3% of GDP. This shows the resounding failure of the welfare policy based on monetary transfers with the intermediation of the “piqueteros” (pickets) groups.
In any case, social involution is of long standing. One way to illustrate it is to compare the incidence of poverty in Argentina with that of neighboring countries. According to information published by the official statistics institutes of each country, it is observed that:
These data show that social backwardness is a phenomenon specific to Argentina. Starting from a similar initial situation in 2006, when the three countries of the Southern Cone began to experience a great international bonanza, Argentina’s poverty rate increased by 50%, while Chile and Uruguay reduced it to 7% and 10%, respectively. In between there was no natural catastrophe, war or invasion; the three countries share similar racial and cultural profiles and all three faced the same international context.
This supports the thesis that the high and chronic poverty rate in Argentina is a derivative of bad public policies supported by a broad consensus among the society. They are the excesses of public spending financed with monetary emission and public debt, the use of the State to benefit spurious interests, disdain for professionalism and efficiency in public management, poor organization of the tax system and federal co-participation, social security disorder, isolation from the world and perverse labor regulations. The fact that a majority of the political system has sustained, or at least tolerated, these bad policies is the main difference with Uruguay and Chile. In these countries, which were governed alternately by left-wing and right-wing coalitions, much more consistent and rational public policies were sustained.
Javier Milei had the vision and the virtue of convincing the population that it is necessary to break with the mistaken consensus that sustains bad policies. He became president without falling into the temptation of repeating “politically correct” slogans. On the contrary, he did so with emphasis and crudeness, stating the need to advance in a strong reorganization of the public sector. Coming to power with votes from very diverse social strata and with a clear and unambiguous message about the need to question the mistaken consensus that sustains the poor organization of the State constitutes an unprecedented opportunity. A phenomenon that has never occurred in the last 40 years of democracy.
Poverty is the result of perseverance in applying the wrong policies. Therefore, it will not be reverted with some “miracle” (such as Vaca Muerta, lithium, high agricultural prices or some other exogenous fact). It is essential to put rationality into public policies. In this context, the population’s endorsement of Milei’s disruptive ideas is an opportunity. Now the political and technical management capacity of the State is needed to implement them.
