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00:00For decades, the conventional wisdom about Argentina's economy was that it's completely broken.
00:05Inflation topped 2,000%.
00:07It's defaulted on its debt more than any nation on Earth.
00:11And a dollar worth in their currency went from looking like this, to this.
00:15That was until one man, Javier Malay, took a literal and metaphorical chainsaw to the country.
00:20And against the odds, it seemed to work.
00:22Right up until the moment it didn't.
00:24To the Trump administration finalizing a $20 billion Argentina bailout.
00:30Support for him is flagging.
00:32Javier Malay is meeting Donald Trump in Washington today,
00:35just days after the U.S. agreed to provide him with a $20 billion economic lifeline.
00:41This has now led everyone back to the same conclusion.
00:43It's still completely broken.
00:45There's a saying amongst economists that there are basically three kinds of countries.
00:49Rich ones, poor ones, and Argentina.
00:52At this point, the nation seems to have tried every form of government,
00:55from hardline socialism all the way to anarcho-capitalism.
00:59But no matter what it tries, it seems to end up in the exact same place.
01:03A brief boom, followed by a crisis, and eventually collapse.
01:07With the recent landslide in the Senate elections,
01:09many people are predicting that Javier Malay might finally be the man to break the country out this doom loop.
01:15But while on the surface it was a great victory,
01:17the truth is that the future of the nation is now more unstable than ever.
01:21And whether they're able to succeed has much less to do with economics,
01:24and a lot more to do with a strange legacy that still haunts the country to this day.
01:30Argentina hasn't always been like this.
01:32In fact, it used to be one of the richest countries globally.
01:35In the 1920s, its GDP per capita was amongst the top 10 in the world,
01:40roughly on par with places like France in Italy.
01:42And its capital, Buenos Aires, was often called the Paris of South America.
01:47Since then, many countries which have started poorer have sprinted past.
01:51And from the 1950s onwards, places like Japan, Hong Kong, and South Korea pulled off the same playbook,
01:57attract reliable foreign capital, build a competitive manufacturing base,
02:01and sell into already rich markets.
02:03That formula demands one thing above all else.
02:07Stability.
02:07Investors have to believe that the rules today will hold for tomorrow.
02:11That stability is something which can take decades to develop, and just one bad government to ruin.
02:16And for Argentina, that's exactly what proceeded to happen.
02:20Even though they were relatively rich, they had one of the highest levels of inequality in the developed world.
02:25A tiny elite of landowners controlled almost all of Argentina's vast agricultural wealth,
02:30while millions of urban workers lived in poverty, crammed into slums on the edges of Buenos Aires.
02:35So, in 1946, a man named Juan Perón was infamously elected on a promise to change.
02:41In theory, that might not sound like such a bad thing,
02:44but this decision has gone on to haunt Argentina every year since.
02:47The problem was, once he'd agreed to do some redistribution,
02:50it became very difficult to know who to actually give money to.
02:53Suddenly, everyone had their hands out.
02:56Farmers demanding subsidies, public sector unions asking for pay rises,
03:00and businesses lobbying for emergency relief, to protect jobs that didn't really exist.
03:04The government found itself in a position where the only way to keep everybody happy
03:08was to make everything cheaper.
03:10As impossible as that might sound, the government did actually have a weird way of doing this,
03:15at least for a little while.
03:16Imagine that under normal circumstances, one US dollar is worth 100 Argentine pesos.
03:22If the government suddenly doubles the value of the peso, so that 100 pesos is now worth $2,
03:27then overnight, Argentines can technically buy twice as much from abroad for the same price.
03:33This is exactly what they did.
03:34And for a few years, this artificial increase in the value of the peso
03:38created what many remember as a golden age,
03:41something that lives on in the nation's memory today.
03:44But as the saying goes, if it sounds too good to be true, that's because it probably is.
03:48While the cheap exchange rate allowed Argentinian consumers to buy a ton of stuff on the cheap,
03:53it had the opposite impact on the country's producers.
03:56Because the currency was so expensive,
03:58nobody outside of Argentina wanted to buy the things the country was making.
04:02This made it impossible to develop any real forms of industry,
04:05simply because there wasn't any market to sell their products.
04:08It's a classic trap that developing countries fall into,
04:11trying to raise living standards too quickly by keeping their currency artificially strong.
04:16Usually countries continue on this self-destructive path for decades.
04:19But this is where things start to look a bit strange for Argentina in particular,
04:23because it's not like governments since the 50s haven't tried to do things differently.
04:27The military junters in the 70s, the Menem government of the 90s,
04:31and even the brief technocratic governments of the 2000s,
04:34all tried to transform Argentina into an export-led manufacturing economy.
04:38But they each ran into the same problem.
04:41Whenever they tried to bring the currency down in value,
04:43it sparked a round of inflation, crushing their popularity,
04:46and eventually they'd get booted out of office
04:48by the very Peronists who had gotten them into this mess.
04:51This cycle has become so common that it's got its own name,
04:55Kuka Risk,
04:56and it explains why the country has found it so hard to get off the ground.
04:59Whenever a sound government gets into power,
05:01investors note that it's basically only a matter of time
05:04before they get kicked out by socialist Peronists,
05:06so they avoid spending any real money on long-term projects
05:09like factories, infrastructure, or local supply chains.
05:13By 2023, this cycle had pushed the country to a breaking point.
05:16Inflation had surged by over 200%.
05:19This crushed the real value of the peso,
05:22but the government tried to hold on with an official exchange rate,
05:25which valued the peso at nearly double what it was actually worth.
05:28As a result, exporting anything from the country became almost impossible,
05:32wiping out what little industry remained.
05:35Factories shut down, unemployment soared,
05:37and by the end of it,
05:38nearly 40% of the population was living below the poverty line.
05:42Needless to say, the country was in a pretty dire position.
05:45And that's exactly the world that Javier Malay walked into.
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07:01Now, let's get back to the video.
07:03You probably already know the story.
07:05The wild-haired libertarian economists who campaigned with a literal chainsaw,
07:09promising to tear down decades of corruption and economic mismanagement.
07:13And to be fair, for a while,
07:15it looked like the insane plan might have actually been working.
07:18Inflation, which had peaked above 250% at the start of 2024,
07:23dropped to under 50% by mid-2025.
07:26Poverty rates initially spiked to around 55%,
07:28as subsidies were cut and public sector jobs vanished,
07:32but they eventually fell back down to around 35%.
07:35But underneath the surface, there was a problem.
07:37Despite the success of the reforms,
07:40they never really attracted the level of foreign investment the country needed,
07:43which is really the key ingredient for a country like Argentina
07:46to get on the path toward long-term economic growth.
07:49After all, without foreign investment,
07:50it would be impossible to build the factories,
07:53infrastructure, and export industries that create long-lasting growth.
07:56The thing is, after Malay's reforms,
07:59foreign investment actually fell from just above $7 billion to under $1 billion in 2024.
08:05The reason for this is actually pretty simple.
08:07Despite his radical free market platform,
08:10Malay chose not to fully float the exchange rate,
08:12which is the way almost all rich countries manage their exchange.
08:15Instead, he opted for a gradual devaluation,
08:19reducing the value of their currency at a fixed 2% per month.
08:22That meant for investors, despite all the reforms and rhetoric about free markets,
08:27Argentina was still an expensive place to do business.
08:30For investors, factories, land, and assets cost nearly 50% more
08:34than what they would if the peso reflected its real value.
08:37And with the official rate falling,
08:39it made far more sense just to wait and buy later for cheaper.
08:42Now, you might be thinking,
08:44if maintaining a fixed exchange rate was so harmful,
08:47why didn't he just float it like he said he would?
08:49Well, the problem is that if the peso had been suddenly allowed to find its true market value
08:53overnight, inflation would have spiked,
08:56as it would have made importing things from other countries a lot more expensive.
09:00And given that his entire platform was about reducing inflation,
09:03this would have killed his chances of staying in power.
09:05Of course, without the confidence that he'd stay in,
09:08investors might choose not to invest in the country,
09:11for the fear that he'd be replaced by Peronists in a couple years' time anyway.
09:15That poses a near-impossible challenge.
09:17Float the peso too fast, and he'd risk another inflationary spiral,
09:21killing his popularity.
09:22But move too slowly, and he'd drive away the very investors he was trying to attract.
09:27But as impossible as this dynamic might seem,
09:29there was a moment where it looked like he might have been about to pull it off.
09:32In April 2025, after months of slowly devaluing the official rate,
09:37the peso was finally allowed to float,
09:40albeit within two controlled bands, to provide some degree of stability.
09:44At this point, all the government needed to do was keep inflation stable,
09:48stick to the reforms,
09:49and crucially, not have any major political scandals that would kill their popularity.
09:53If they managed to do that,
09:55then foreign investment would finally start pouring into the country,
09:58putting it firmly on the path toward prosperity.
10:01But like a painfully bad script that everyone saw coming,
10:04that's exactly when things started to go wrong.
10:07Just weeks after the peso was floated,
10:09leaked documents revealed several high-ranking officials within Malay's administration,
10:14including his own sister,
10:15had allegedly accepted huge sums of money from private companies
10:19in exchange for lucrative state contracts.
10:21The scandal, quickly dubbed Gasgate by local media,
10:25dominated headlines for weeks.
10:26For a government that had campaigned on crushing corruption,
10:29it was a massive betrayal.
10:31Overnight, support collapsed,
10:32and for the first time,
10:34it looked like there was a real risk of a Peronist-style,
10:36socialist government coming back into power.
10:38So, investors,
10:40knowing that if they were to happen,
10:41their money would be stolen off them,
10:43started pulling their money out.
10:45The value of the peso quickly began to collapse again,
10:48falling 25% in just a couple months.
10:50To try and stop the bleeding,
10:52the government, in a somewhat ironic twist,
10:54ended up intervening heavily in the markets,
10:57burning through foreign reserves to prop up the currency.
11:00Malay himself even flew to Washington
11:02to negotiate emergency credit lines from the US Treasury
11:05and the IMF.
11:06The self-proclaimed anarcho-capitalist
11:08who campaigned on abolishing the central bank
11:11was now asking global landers to help save it.
11:14And to be fair,
11:14he managed to secure a $40 billion stabilisation package.
11:18The problem is,
11:19it's not actually clear that any of this is really helping.
11:22While the next presidential elections
11:23aren't until late 2027,
11:25it's a massive political challenge
11:27to properly recover support before then.
11:29But that doesn't mean it's impossible.
11:31After all,
11:32nobody expected him to win last time either.
11:35Malay built his first campaign on some crazy stunts,
11:38touring the country with a chainsaw,
11:40shouting at career politicians on TV,
11:42and promises to literally blow up the central bank.
11:45If he compared that energy with real progress,
11:47cracking down on corruption,
11:49keeping inflation low,
11:50and getting the economy growing,
11:51he could still turn things around.
11:53The good news is that there are some early signs
11:55that this might already be happening.
11:57Last October's midterm elections
11:59were seen as a critical test,
12:01a kind of referendum on his first year in power.
12:04If he failed,
12:04it would have confirmed what many investors already feared,
12:07that his reform programme was politically doomed
12:10before it had even begun.
12:11Going into the elections,
12:12most experts expected him to get wiped out.
12:15But instead,
12:15the opposite happened.
12:17His party actually managed to win around 40% of the vote,
12:20enough to net him a small majority
12:22in both the Senate and the lower house.
12:24And the impact of this was instant.
12:26As soon as the news came out,
12:27the market jumped by more than 20%,
12:29just showing how terrified investors have been
12:32of a socialist victory.
12:34Since then,
12:34investors have slowly stopped pulling their money out,
12:37finally allowing the currency to stabilise.
12:39That's all obviously given him a much-needed boost.
12:42But the truth is,
12:43he's still got a long way to fix the country.
12:45Polling for the 2027 election
12:47still has him neck and neck with the socialist alternative.
12:50And if he isn't able to fully restore confidence
12:52in his ability to win well before then,
12:54the much-needed investment might never come.
12:57And Argentina would have found itself
12:59in the exact same trap it's been caught in for decades.
13:01So,
13:02can the country actually be fixed?
13:04In theory,
13:05yes.
13:05The country still has the fundamentals of a strong economy,
13:08vast natural resources,
13:10a well-educated workforce,
13:11and a deep cultural tie to global markets.
13:14The problem has never really been
13:16what Argentina needs to do,
13:17but whether any government
13:18can survive long enough to actually do it.
13:20Malay's reforms showed that stabilisation is possible,
13:23at least in the short term.
13:25But without political stability,
13:26even the most well-designed economic plan
13:29is destined to fail.
13:30Investors,
13:31both domestic and foreign,
13:33need confidence that the rules of the game
13:35won't change every four years.
13:36And so far,
13:37Argentina hasn't been able to do that.
13:39Whether this moment becomes the start of a genuine recovery,
13:42or just another brief pause in a decade-long cycle,
13:45will depend less on ideology,
13:47and more on credibility.
13:48If Malay,
13:49or whoever comes next,
13:50can finally convince people that stability will last,
13:53Argentina could still turn the corner.
13:55But until then,
13:56it remains trapped in the same feedback loop
13:58that has defined its modern history.
14:00Political volatility,
14:02feeding economic collapse,
14:03and economic collapse,
14:05feeding political volatility.
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