The rise and fall of Argentina’s economic miracle

Argentina serves as one of the starkest cases of a nation’s fall from grace. A country now characterised by economic instability, political controversy, and distrust in its own currency was once amongst the top 10 wealthiest nations globally just over a century ago. How did Argentina become so rich, and more importantly, what facilitated an economic downturn of such a colossal scale?

Entering the 20th century, Argentina’s economic ascent looked unstoppable. In 1905, economist Percy F. Martin wrote that, despite its rapid advances, “Argentina has but just entered upon the threshold of her greatness.” Two factors drove this unprecedented growth. First, Argentina capitalized on rapid pre-WWI globalization and expanding free trade, exporting primarily cattle and grain from its abundant agricultural resources to meet surging foreign demand. Second, its extensive Atlantic coastline reduced transport costs, and facilitated integration into European and American trade networks.

Foreign investment and mass European immigration soon followed. By the early 1900s, Argentina’s per capita GDP almost matched that of the United States, and real wages approached British levels. Buenos Aires was nicknamed “the Paris of South America”, a shorthand for a country that seemed to have joined the top tier. Yet the success carried a vulnerability: Argentina had wagered heavily on one model, exporting to a world that kept buying.

However, the evolving global conditions exposed Argentina’s weakness. Like many other countries, Argentina entered a recession following the start of World War I. Foreign investment dried up, leaving Argentina to pick up the pieces of an economy reliant solely on international trade. Despite its relative recovery during the 1920s, the Great Depression of 1929 compounded the negative effects of Argentina’s economic model, underscoring the need for reform.

Into that vacuum stepped Juan Perón. The former Labour Minister won the presidency in 1946 on a socialist platform promising redistribution, industrial policy, and labour empowerment. His vision centred on a heavily regulated economy with nationalized key industries, expanded workers’ benefits, and strengthened trade unions- all framed as a path to economic independence. Initially, his formula worked: between 1945 and 1949, wages rose 35% while unionization reached 42% of the workforce.

However, the model deteriorated rapidly. Nationalization placed sectors like rail and finance under state control, where underinvestment and patronage networks hollowed them out. State-owned enterprises swelled with politically loyal hires rather than qualified managers, and losses mounted. By the 1960s, the railways alone were reportedly losing millions daily. Continuous subsidies to keep them afloat widened fiscal deficits and consumed an increasing share of national output through the 1980s. To cover shortfalls, the government printed money, triggering chronic inflation that became hyperinflation and destroyed savings. Inflation hit 297.57% between 1946 and 1951; by the late 1980s, prices increased by more than 50% month to month.

Unable to sustain the peg, Argentina abandoned convertibility in 2002.

Persistent instability turned the peso into something many Argentines no longer trusted to hold value. This crisis of confidence led President Carlos Menem to peg the peso to the dollar at 1:1 in 1991, hoping that guaranteed convertibility would restore trust and, paradoxically, eliminate the need for conversion.

The peg initially stabilized prices and tamed inflation. However, the cost was flexibility. With monetary policy effectively tied to the dollar, Argentina imported US conditions without the ability to adjust. As the dollar strengthened in the late 1990s, the peso became overvalued, exports lost competitiveness, and the economy slid into a recession. Unemployment rose to around 15%, and public debt ballooned towards US$95 billion. The social fallout was stark. By 2002, over half of Argentines were living below the poverty line, including around 70% of children at the crisis’s peak. Unable to sustain the peg, Argentina abandoned convertibility in 2002.

The collapse of convertibility didn’t restore confidence, instead deepening the public’s mistrust. With year-on-year inflation back above 100% by early 2023, Argentines were forced to adapt through a range of survival strategies. Many households began buying on interest-free instalments to lock in today’s prices rather than saving in a currency that was losing value month by month. Others bulk-bought essentials ahead of the next jump, or used informal swap markets when cash prices moved too quickly.

In April 2023, one citizen paid 469 pesos per dollar on the street, compared with an official rate of 222.

The real pivot, however, has been a drastic turn to the dollar. Long a familiar recession reflex, Argentines are converting pesos into dollars more than ever. To preserve scarce reserves, the government caps official purchases at $200 a month, fuelling a thriving black market. The “blue dollar” trades at vastly inflated rates, often more than double the official price. In April 2023, one citizen paid 469 pesos per dollar on the street, compared with an official rate of 222. For him, it was “an investment worth making”. The dollar, he said, would hold its value in a way the peso could not.

The election of President Javier Milei in December 2023 has brought a dramatic and painful attempt at stabilisation. By late 2025, inflation had plummeted from 211% to 32%, and Argentina achieved its first fiscal surplus in years. Milei’s aggressive “chainsaw” austerity slashed spending, froze wages and pensions, halted public works, and cut subsidies. Milei also deployed “shock therapy” by devaluing the peso 55%.

The social costs have been undeniably severe. Austerity triggered a sharp recession that pushed poverty above 50% in 2024, though it has since eased to around 31.6%. Argentina’s economic stability rests on fiscal discipline, but the politics of sustaining it may prove harder than the economics.