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)

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

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)

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

“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.”

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Best regards,

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Federico Polese

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