Argentina

An overview of the effects of monetary policy in Argentina on GDP and inflation, from 1961 to the present day.

% annual growth rate:

Sources: M3 from OECD database and nominal GDP from IMF database, as at May 2026

The medium-term relationship between money and nominal GDP growth in Argentina, 1961-2025

Five-year moving averages of annual % changes, with 1963 being the start of the first five-year period

Comment on monetary trends in Argentina

Argentina provides a perfect textbook example of the unfortunate effects of mismanagement of the economy - and in particular, of public finances and money - on inflation and economic activity. After decades of unsound fiscal policies in the 1970s and 1980s and protectionist policies that resulted in successive public deficits and ever growing public debt, the government resorted to the monetisation of the deficit to pay for public expenditure. The combination of overspending and hyperinflation was accompanied by the rapid depreciation of the currency, and increasing difficulties in servicing the foreign debt, leading ultimately to a default on the debt. The 1980s illustrates how the exponential growth of money (732% annual rate on average over the decade) leads rapidly to hyperinflation (reaching more than 2,000% at the end of the 1980s), and finally the collapse of the economy as a whole.

Monetary stability returned to the country with the adoption of a currency board in 1992, the tied national currency by law at par to the US Dollar. This new monetary regime imposed a more severe and effective discipline on the government and the central bank. It brought back monetary stability, much lower inflation and more stable macroeconomic conditions. These years of monetary and financial stability ended at the end of the 1990s with the collapse of the currency board as a result of different shocks affecting the Argentinian economy (such as the devaluation of the Brazilian real and the appreciation of the US dollar), resulting in the freezing of the bank deposits (the so-called 'corralito') and the collapse in broad money (more than 20% fall in 1992), which led to a severe recession and massive unemployment.

In recent years, under the presidency of Cristina Fernandez, broad money growth was quite high, leading to inflation and output instability. (During this period, the official inflation statistics were widely discredited by international organisations). The next President of the country, Mauricio Macri, restored the independence of the central bank and committed to more stable monetary and fiscal policies, although inflation rose sharply - to over 40% - in 2016 and again in 2018. Indeed, under his successor Alberto Fernández, inflation shot up to even higher levels, reaching  over 100% in 2023.

The current President, Javier Milei, was elected on a manifesto of a radical cut in the size and cost of the state in order to bring inflation down. He also stated his intention to abolish the central bank and dollarise the economy. At the current time, however, this proposal seems to have been put on the back burner.  He has managed to bring inflation down to around 30% but at a great cost - the squeeze on state spending and borrowing triggered a sharp recession in 2024.