Argentina: How to Deregulate a Country – talk with: Federico Sturzenegger (Minister of Deregulation, Argentina)

Executive Summary

• Thesis. Argentina’s long stagnation stems from a rent-seeking “Bermuda Triangle” of unions, corporate leaders, and the Peronist party (the “casta”). Sturzenegger argues for a revolutionary deregulation: eliminate legal privileges, break monopolies, and restore competition.

• Early results. Rapid primary surplus via ~5% spending cuts; social transfers +40% to end clientelism (by disintermediating middlemen); sweeping Decree 7023 to liberalise rents and telecoms (Starlink allowed at zero fiscal cost); disinflation from ~30% m/m to ~1.5% m/m.

• New fiscal rule: no new spending without identified funding. Reform path prioritises eliminating harmful laws (not merely modifying) and continuing public-sector downsizing.

• Durability. Reforms “stick” only if the public perceives politicians as honest; opposition is attempting to force crisis. Judiciary risk is material.

• Open questions: will the currency resist these sudden changes?

Context & Framing

• Stability of the old regime. “Argentina is the most stable country in the world” — not a compliment: union and industry leaderships have been unchanged for decades; privileges are embedded in law since the late 1960s.

• Revolutionary analogy. Cites the French Revolution: remove the “land”/privilege base of the old order; today, that means dismantling legal protections for unions/corporatist rents and opening markets.

• Preparation. Reform program was drafted two years before the election: every statute sorted into “eliminate” vs “modify.”

Four Early Wins (as presented)

1. Fiscal: primary surplus in one month. Achieved via ~5% expenditure cuts; message that “reducing expenses is expansionary” by lowering the inflation tax and freeing resources for the private sector.

2. Social transfers: +40% to recipients. Digital, direct payments cut out intermediaries linked to protest networks; beneficiaries also regained one working day/month previously spent queueing.

3. Mass deregulation: Decree 7023.

   • Rents liberalised.

   • Telecoms: cable monopoly dismantled; Starlink permitted nationwide with zero budget cost.

   • Signal case: deregulation can deliver immediate consumer gains.

4. Disinflation. From ~30% m/m to ~1.5% m/m (speaker’s figures). Poverty already below the level at Milei’s inauguration (event remarks).

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How the Program Operates

• Eliminate, don’t tweak. Start by asking if a rule should exist at all. If not, repeal.

• Crowdsourced clean-up. TV show + website solicit rules that “make life miserable”; examples cited:

  • Watermelon packaging rule blocking exports due to foreign buyer standards.

  • 800-page navigation code; backup generators required even for small boats.

  • Collective bargaining contributions: 1% from entrepreneurs + 1% from unions (≈ $1bn p.a. burden, per remarks).

• Zero-budget discipline. “Zero budget project” approach; even environmental restrictions (e.g., broad glacier/periglacial bans) reviewed to enable competitive mining relative to Chile.

• Public sector. Ongoing downsizing (example given: 300k → 50k headcount without service loss, per remarks).

• Capital markets (post-election). Simplify issuance for SMEs and support mutual funds; credibility needs rebuilding before launch.

• Pensions & informality. Monthly indexation now tied to the previous month’s inflation; speaker said real pensions have recovered ~25%. Next step requires bringing ~6 million informal workers into the system.

Politics, Risks, and What Could Break

• Opposition tactics. Attempts to provoke crisis (e.g., new unfunded spending equal to ~7% of GDP); government counters by demanding identified financing (e.g., implied VAT hikes) under the funding-for-spending rule.

• Judicial veto points. When vested interests are hit, final resort is the courts; judiciary risk to deregulation is high.

• Elections. After October 2025, Milei’s party expects more seats (from a very low base), improving ability to block hostile initiatives.

• Process reality. Quoting an Australian PM: reform is like “skiing without skis” — messy but direction matters. Durability depends on perceived honesty of officials.

• Currency regime. Dollar contracts are recognised; full dollarisation/Central Bank abolition set aside for a more moderate, dual-system path.

  
  

Macro & Growth Backdrop (as presented)

• Past growth bursts of ~6% and 8%, now at a plateau. The policy bet is that deregulation + fiscal anchors will shift the supply side and sustain growth without rekindling inflation.

• IMF relationship: $20bn in support tied to early achievements and the need to rebuild FX reserves to relax capital controls (part of past agreemnts too).

  
  

Investor Takeaways

• Short-term volatility, medium-term upside. Labour, utilities, real estate and telecoms face transition shocks; clearer price signals and competition should lift productivity and attract FDI over time.

• Follow-ups to track.

  1. Next waves of law eliminations beyond Decree 7023;

  2. Judicial challenges and their outcomes;

  3. October 2025 legislative math;

  4. Capital-market reforms for SME issuance;

  5. Durability of the primary surplus and the “funding for spending” rule.

• Social stability is the hinge. The government links disinflation and poverty reduction directly to spending discipline. If the public continues to perceive clean execution, reform momentum improves; if not, policy slippage risk rises.

Selected Lines (attribution to the event)

• “Argentina is the most stable country in the world” — leadership of unions and corporates unchanged for decades.

• The “Bermuda Triangle” where the economy drowns: unions + corporates + Peronist party.

• “Reduction of expenses is very expansionary” — by shrinking the inflation tax.

• Reform “is like skiing with one ski… what counts is pointing in the right direction.”

• Reforms “stick” only if people believe politicians are honest.”

  
  

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Federico Polese

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