Are Milei's reforms bearing fruit? Key signals from Argentina's Q1 economic data!

From a historical perspective, Argentina’s economy contracted sharply in 2024 (by around -3.5%), but rebounded strongly in 2025—primarily driven by restored investor confidence following fiscal consolidation and export-led growth. Entering 2026, however, the base-effect has weakened, and the domestic demand dampening impact of austerity measures has taken hold; thus, the slowdown in GDP growth is broadly in line with expectations. Currently, the economy shows neither acceleration nor sharp deceleration—it is experiencing a moderate, orderly slowdown while retaining underlying resilience. The IMF and the World Bank project Argentina’s full-year 2026 GDP growth at approximately 3.0%–3.5%, and the Q1 data broadly aligns with this trajectory. Second, domestic demand remains weak, while external demand is robust—exports continue to be the main engine of Argentina’s economic recovery. External demand is strong: In Q1 2026, Argentina’s merchandise exports reached USD 21.9 billion, up 16.9% year-on-year; imports stood at USD 16.3 billion, down 7.3% year-on-year. As a result, Argentina recorded a trade surplus of USD 5.5 billion—the primary driver of economic growth. Argentina’s export growth stems mainly from stable prices for agricultural commodities such as soybeans and corn, increased export volumes from the Vaca Muerta shale oil and gas project, and double-digit growth in lithium exports—fueled by surging global demand for new-energy technologies. Speaking of exports, Milei’s energy development strategy deserves special attention. This strategy is pivotal because it is reshaping Argentina’s trade balance. In 2025, Argentina achieved its first energy trade surplus in nearly two decades; oil production is projected to reach one million barrels per day by 2027–2028. YPF’s VMOS pipeline project—a 437-kilometer connection linking Vaca Muerta on the Atlantic coast to Punta Colorada, backed by USD 3 billion in investment from Chevron and Shell—is scheduled to begin operations by end-2026, enabling the first Very Large Crude Carrier (VLCC) shipments to Asia. Natural gas is Milei’s next priority after oil. Argentina is reversing its former dependence on Bolivian gas imports and plans to build an LNG export terminal using Golar LNG’s floating liquefaction units. Milei’s RIGI investment incentive regime—which offers 30-year tax stability, unrestricted profit repatriation, and accelerated depreciation for projects exceeding USD 200 million—has attracted over USD 6 billion in committed new investment. With breakeven costs ranging from USD 36–45 per barrel, the field remains competitive even during severe economic downturns. Horacio Marín, CEO of YPF, stated that the company can profitably develop the entire Vaca Muerta basin at USD 45 per barrel. Yet domestic demand remains sluggish and clearly under pressure: Private consumption grew only 1.2% year-on-year—far below the over-5% growth recorded across all of 2025. Fixed capital formation (investment) rose 2.9% year-on-year—an improvement, yet real estate and manufacturing investment remain slow to recover due to high interest rates and persistent uncertainty. Government consumption edged down 0.8% year-on-year, reflecting fiscal austerity. Overall, Argentina’s Q1 2026 economy exhibits a classic “externally driven” profile. Exports contributed nearly 60% to GDP growth, whereas consumption and investment combined accounted for less than 40%.

Argentina’s natural gas: Can this time secure a stable export path?

On October 1, 2026, Horacio Marín, President and CEO of Argentina’s state-owned oil company YPF, announced on the social media platform X that the final investment decision (FID) for the Argentina LNG project is expected on November 26. According to project developers, this will be the largest private investment project in Argentina’s history. If built and commissioned as planned, the project could propel Argentina into the ranks of major global liquefied natural gas (LNG) exporters. However, Argentina’s path toward natural gas exports has been marked by repeated setbacks. In the 1990s, Argentina was once a leading natural gas exporter in South America—but by the 21st century, it had become a net importer. In 2019, Argentina made its first attempt to export LNG, yet this effort lasted only about one year. Why have abundant resources failed to sustain stable exports? And can this latest wave of investment break the previous cycle? To answer these questions, we must revisit Argentina’s economic liberalization reforms of the 1990s. I. Boom and Crisis In the early 20th century, Argentina ranked among the world’s wealthiest nations thanks to agricultural exports. However, the Great Depression triggered a global trade collapse, plunging Argentina into prolonged economic stagnation and chronic inflation. In 1989, Carlos Menem assumed the presidency and launched sweeping economic reforms, privatizing key public enterprises—including those in energy, aviation, and telecommunications. In 1991, to curb hyperinflation, Argentina pegged the peso to the U.S. dollar at a 1:1 exchange rate. Menem’s reforms delivered rapid economic recovery, earning Argentina recognition as a model of free-market reform. Since the 1950s, the Argentine government had promoted natural gas use; by the 1980s, most households used natural gas for cooking and heating, and many industrial plants and power stations relied on it. The 1990s’ privatization reforms improved sectoral efficiency to some extent and spurred increased natural gas production and cross-border pipeline construction. Between 1996 and 1999, Argentina built seven natural gas pipelines to Chile, emerging as a regional gas exporter. Although the peso-dollar peg swiftly tamed hyperinflation, it also stripped Argentina of monetary policy flexibility. The 1997 Asian financial crisis was followed by Russia’s 1998 sovereign debt default, prompting global investors to rush into the U.S. dollar for safety. A stronger dollar severely eroded the competitiveness of Argentine exports, abruptly ending Argentina’s brief boom. To cover mounting deficits, Argentina resorted to heavy borrowing. In November 2001, the IMF refused to disburse a loan, triggering the sudden eruption of long-simmering debt problems. Bank runs, capital flight, and nationwide riots ensued. On December 20, the sitting president resigned. Within ten days, Argentina cycled through three interim presidents before a transitional president assumed office on January 1, 2002. On January 6, Argentina officially abandoned the peso-dollar peg—and the peso plunged sharply in value. Before the crisis, natural gas development costs were largely denominated in U.S. dollars, while downstream gas sales revenue was priced in pesos. After the crisis, the government imposed emergency price controls, preventing natural gas prices from adjusting fully in response to cost changes and exchange-rate fluctuations.

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