Imagine a country caught in an endless cycle of economic turmoil, where each recovery effort only delays the next collapse. Inflation soars, debt piles up, and the government again turns to the lender of last resort IMF, hoping for a lifeline. This is Argentina, a nation that has become synonymous with economic mismanagement, now taking a dramatic route under the libertarian President Javier Milei whose radical chainsaw approach led to drastic spending cuts, a sharp devaluation of the peso, and the dismantling of state institutions—has sent shockwaves rippling across the country.

While some hail his reforms as the tough medicine Argentina needs, others warn they could push the nation further into instability. Is this the painful reset Argentina has long avoided, or is it another chapter in its long history of economic crises?

Milei’s shock therapy cut public spending by 30%, devalued the peso by 50%, and dissolved half of government ministries overnight.

Milei’s economic plan is nothing short of shock therapy. He dissolved half of government ministries, cut public spending by 30%, and devalued the peso by 50% overnight. Inflation peaked at 254% and has since dropped to 2.2% as of January 2025—the lowest in years. On the surface, these numbers signal progress. However, economic stability does not always translate to social stability. Real wages have shrunk, poverty has surged from 45% to nearly 53%, and with the economy shrinking 1.8% in 2024. This has collapsed sectors like manufacturing and construction, where job loss has been enormous.

In his latest article, he called for leveraging IMF funds to repay government debt held by the central bank. Moreover, his strategy of controlling excess money supply will lower inflation further and will help stabilize the peso. This will help potentially restore investor confidence and fiscal discipline. However, the broader challenges to sustained growth will remain unresolved. Without deeper structural reforms, prolonged austerity and reliance on the IMF could risk economic stagnation and social unrest.

Though the International Monetary Fund (IMF) has praised Milei’s aggressive fiscal discipline, but remains hesitant to extend further credit of $10–20 billion, this reflects a broader dilemma: While austerity measures can curb inflation and restore investor confidence, they can also stifle economic activity and deepen inequality. In this regard comparisons with Pakistan are inevitable. Like Argentina, Pakistan has been caught in a cycle of IMF bailouts, with 25 loans since its inception.

Pakistan also suffers from fiscal deficits, high debt, weak industrial bases, and volatile currencies, and, under its latest IMF deal, has also embraced tough austerity measures, including subsidy cuts, tax hikes, and currency devaluation. However, the socio-economic impact has been severe. As per Dr Hafiz A Pasha poverty rate has risen to 44 percent, unemployment rate in the country said that it has reached a historic high of around 10.8 percent compared to the average of 5-6.5 percent and real wages have declined by up to 30 percent for the last three years shows that people purchasing power have fallen to the lowest.

Inflation dropped from 254% to 2.2% following radical reforms, yet poverty surged from 45% to nearly 53%.

While examining the economic strategies of both nation, one can see that the stark difference lies in their approach. Argentina, under Milei has shown an ironclad commitment to structural adjustments, even at the cost of losing political capital, whereas in Pakistan successive governments have often implemented partial reforms, reversing course to feather the nests of elite rather than to serve the public interest. If Islamabad seeks long-term economic stability, it must learn from both the successes and failures of Milei’s experiment.

In Pakistan the execution of structural reforms must be handled with precision so that social distress can be avoided. A more measured strategy could be on—emphasizing the expansion of the tax base rather than tax rates, strict fiscal discipline, more funding for social safety net programs like the Benazir Income Support Program (BISP), and vocational training for youth—can mitigate the impact of structural reforms.

Similarly, austerity must go in tandem with policies that enhance productivity, employment and the export base and attract investment beyond debt-driven inflows. However, the current dispensation appears indifferent to the common man’s struggle as it doubles the federal cabinet’s size. This blatantly contradicts earlier promises of austerity and reducing the size of the government that would have enabled the ruling elite to share the economic burden.

For austerity measures to succeed, the current dispensation must walk the talk of austerity and share the equal economic burden. Similarly, political stability and institutional consensus are equally crucial. Argentina’s past economic collapses were not just due to financial mismanagement but ought to political turmoil. Pakistan is under a political quagmire where non democratic forces are calling the short.

To discourage such forces, political parties must rise above their vested petty interest for larger national interest and build cross-party consensus on economic reforms to ensure continuity and avoid policy reversals that deter investors. Over-reliance on external creditors should also be avoided. While the lender of last resort provides short-term relief, sustainable economic growth requires internal resource mobilization, which can only be made possible via a homegrown plan.

Pakistan, trapped in a cycle of IMF bailouts, has seen real wages fall by up to 30% and unemployment hit historic highs.

Milei’s all in gamble on shock therapy is yet to unfold, and the viability of his long-term policies remains uncertain. Argentina may achieve economic stabilization, but at what social cost? Pakistan faces a similar crossroads, and the choices made now will shape its economic trajectory for decades.

For Islamabad, one thing is clear that bold painful reforms are indispensible, but their execution must be strategic, inclusive, and mindful of long-term development goals. The difference between recovery and crisis lies in how a nation manages the trade-offs between austerity and growth, stability and equity, urgency and sustainability.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.