With GDP in 2024 at a paltry 0,6 percent, a R190 billion hole in the three-year Medium Term Expenditure Framework and a debt to GDP ratio rising above 75 per cent, South Africa’s challenges are daunting.

However, we should bear in mind that other countries have faced similar situations and with leadership, political will and determined action achieved remarkably quick results.

Two years ago, Argentina had the highest annual inflation rate in the world: 211 percent. It was a country prone to economic stagnation and runaway inflation, a result of years of excessive money printing to cover government deficits.

In 2023 the Argentine people elected a candidate promising radical change, Javier Milei. A self-described anarcho-capitalist who believes in limited government, he warned Argentines in his inauguration speech, “there is no money”.

Fourteen months later Argentina has become a remarkable story of deregulation, fiscal discipline, and rapid reform. Whatever one thinks about the new regime’s politics, this looks like a remarkable turnaround.

Last week, I talked with Argentina’s Minister of Deregulation and State Transformation, Federico Sturzenegger, to discuss how the Milei government took a “chainsaw” to the Argentinian economy.

Sturzenegger is well suited to be “the plumber of deregulation” (his term). An academic, who before joining the Milei government, ran a state energy company, was president of the Central Bank, a national deputy in the Argentine parliament, and head of the City of Buenos Aires Public Bank.

The Milei administration inherited an economy trapped in what Sturzenegger calls a “Bermuda triangle” of vested interests: entrenched unions, big business, and the Peronist political establishment. Excessive regulation and bureaucracy had become tools for maintaining the power of these groups, stifling competition, increasing poverty and blocking economic dynamism. Sturzenegger argues that dismantling these barriers is essential for growth, “Regulations kill entrepreneurship. Deregulation is pro-small firm and anti-corruption. Inflation holds back growth and is a poverty generator.”

Sturzenegger explained, “President Milei made it clear that this had to change, and something remarkable happened – he acted immediately: In just one month, he cut government spending by 5 percent of GDP.”

With the approach that every peso the government spends is a peso taken from the hands of the Argentine people, Milei’s administration stopped wasteful public projects, dismissed 40,000 surplus public employees, and reduced wages for public servants.

Milei also set his sights on what he saw as Argentina’s bloated government. One of his first actions was to halve the cabinet from 18 to nine ministries, a move aimed at improving efficiency and reducing political bureaucracy.

“We cut 30 percent of political positions in the first year and the process is continuing. We are a small cabinet. So meetings flow very easily because we all think very much alike. And we are focused on maintaining a fiscal surplus.”

By cutting the deficit, the government stopped printing money, and inflation began to fall. According to Sturzenegger, this approach, alongside other reforms, has led to 5 percent economic growth in one year and has moved 10 million people above the poverty line. The Milei administration’s radical fiscal policies resulted in Argentina ending 2024 with a fiscal surplus – one of only five countries in the world to do so.

Three weeks into the Milei government, a Decree was issued granting Milei’s administration the power to abolish regulations across various areas. This was presented to Parliament for a simple yes or no vote, with no amendments allowed. Two years prior to this Sturzenegger and a team had commenced a comprehensive look at what laws and regulations needed to be changed. Once becoming Minister in July 2024, Sturzenegger and a small team got to work: they opened a public portal so that citizens and businesses could report regulations for elimination; every time they cut a law or regulation Sturzenegger would tweet this, and then the President would also tweet backing the deregulation concerned. With the use of ChatGPT, they analysed 700,000 regulations to determine which ones could be eliminated, kept, or amended. They have a very tight timetable as the Parliamentary Decree expires about a year after Sturzenegger took office.

“Before Milei came to power, regulations prevented satellite internet services. Companies like Starlink were not allowed to operate,” said Sturzenegger. “One of Milei’s first moves was to remove that restriction, and now Starlink and other satellite internet providers are available, ensuring complete coverage across the country. Before this, Argentina had invested $7 billion over 15 years in a state-owned company, ARSAT, to deploy fiber optics. But a simple deregulation made all that investment obsolete. This highlights the risk of state ownership, where huge sums are spent on projects that technology and markets may soon render obsolete.”

While Sturzenegger himself has successfully managed and turned around two state-owned institutions, he warns against their inefficiencies and risks: “State-owned enterprises are a recipe for disaster.”

As he explains, the lack of clear ownership and accountability leaves these institutions vulnerable to mismanagement and corruption. Speaking on Milei’s broader approach to privatisation, Sturzenegger notes, “Javier Milei is now in the process of privatising everything that can be done by the private sector, as we believe these services can be provided better by private companies.”

Milei’s reforms, and the positive impact they have had on the poor, challenge the conventional view that, in developing countries, a large state is necessary to protect the poor, while pro-market policies only help the rich. The Milei government has reduced inflation which is devastating to poor people and has introduced reforms that ensure that social aid reaches people directly: “Social aid money was funneled through intermediaries who took a cut. In his first weeks, Javier Milei cut out the intermediaries ensuring that people received the full transfer amount—on top of an increase instituted by the President. This has increased support for Milei amongst the poor.”

Sturzenegger argues that “the reforms have a dimension that goes deeper than the reforms themselves… an economic overhaul of the economic power structure in Argentina – a challenge to the political establishment.”

Historically, trade unions have played a significant role in Argentina’s economic landscape, but as Sturzenegger sees it, they no longer act in the interest of the people; instead, they defend their own privileges and those of big business. This concentration of power, he argues, has stifled competition and prevented economic dynamism.

Argentina’s strategy centers on creating an environment where the private sector can thrive, thereby expanding opportunities, creating jobs and ensuring a reduction in poverty.

South Africa is different from Argentina but there are important lessons to be learned from the speedy reforms taking place in the Argentine.

Deregulation and cutting back a bloated state is not a boring, bureaucratic task nor is it impossible. It can be done quickly. It needs hard work, application, mechanisms for public involvement and some correction when mistakes are made. This requires political leadership and will, excellent and determined ministers to implement reform and a clear approach to the role of the state and markets, which can differ in each society.

South Africa can reform much faster and with much greater effect. What is taking place in Argentina should inspire the Government of National Unity as it moves to table its first budget this week.

This article is based on Conversations with Ann Bernstein; Federico Sturzenegger, ‘Chainsaw’: The first year of Javier Milei’s presidency

This article was published on PoliticsWeb.