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The Argentine economic labyrinth:

surplus without growth, record harvests without consumption

and SMEs that are extinguished while the large conglomerates celebrate

The Argentina of 2026 is a shocking paradox: fields that break historical production records, inflation that fell from 25% per month to around 2-3%, a fiscal surplus not seen in 15 years... and yet factories work at 53.8% of their capacity, SMEs close daily, retirees struggle to make ends meet and domestic consumption continues to be flattened. How is it possible that with so many positive indicators the real economy does not take off? This article attempts to answer that question with data, analysis, and historical perspective.

📉 The adjustment that balanced the accounts but deactivated the economy

In December 2023, Argentina had a primary deficit of 2.9% of GDP and a financial deficit of 6.1%. The photo was untenable. The government of Javier Milei arrived with a unique and radical promise: fiscal balance at any cost, the famous 'chainsaw'. And it delivered: in 2024 the primary surplus reached 2.1% of GDP, with a positive financial result of 0.3%, the first since 2010.

But the mechanism was surgical only in the accounting area. Real public spending fell by 27.5% – the largest contraction since 1994. The cuts mainly affected retirements and pensions (25.3% of the total adjustment), public works (23.2%), energy subsidies (14.5%), social programs (8.8%) and public sector salaries (8.6%).

The result was predictable by any macroeconomic textbook: with liquefied incomes and spending cut, domestic demand collapsed. GDP fell by a cumulative 3% in 2024. VAT collection – the tax that most accurately reflects consumption – fell by 16.3% year-on-year in real terms in the first half of the year. Profits, another −13%. Tax collection itself, which should have been financed by the State, fell by 6.6% in real terms in the first eleven months of the year.

The irony is geometric: by destroying the demand to balance the accounts, the tax base that sustains those accounts was also destroyed. A dog biting its tail.

🌾 Record harvests that do not feed the domestic market

The 2025/2026 agricultural season recorded extraordinary numbers: 49.9 million tons of soybeans, 70 million tons of corn – the highest volume in twenty years – and 7.4 million tons of sunflower, a historic record. The Argentine countryside produces like never before.

However, this agrarian wealth does not translate into internal economic dynamism. Why? Because the agro-export model, by definition, exports. Foreign currency comes in, pays debt, strengthens reserves, and in the best of cases finances public spending through withholdings. But the farmer who sold his soybeans does not necessarily buy a refrigerator manufactured in Córdoba or hire a gas operator from Rosario.

The oil industry processed a record 47.6 million tonnes in 2025, with idle capacity of 28.2%, the lowest since 2011. But the rest of the manufacturing industry tells another story: in December 2025, the utilization of general industrial installed capacity fell to 53.8%. Almost half of the machines in Argentina were stopped or running at half speed.

This is the heart of the structural problem that the article seeks to illuminate: without domestic demand, production cannot scale; and without scale, unit costs skyrocket. Economies of scale work in both directions.

⚙️ The Fixed Cost Trap and the Reverse Spiral

A company that produces 1,000 units per month has its fixed costs – rent, permanent payroll, amortization of equipment, insurance, services – distributed among those 1,000 units. If demand falls to 500 units, those same fixed costs are spread across half of the products: the cost per unit doubles. The company has two options: raise prices – aggravating the fall in consumption – or close.

This mechanism, perfectly described by classical economic theory, is exactly what is destroying the Argentine SME industry. It is not business mismanagement. It is not a lack of intrinsic competitiveness. It is the implacable logic of economies of scale working in reverse: fewer sales → more unit cost → less competitiveness → fewer sales. A downward spiral that no entrepreneur can stop alone.

👴 Pensions, wages and informality: the tripod of lost consumption

The revival of a depressed economy is not an academic mystery. Keynes explained it almost a century ago: when the private sector does not invest and consumers do not spend – because they can't – it is the state that must inject demand. The most direct and efficient mechanism is to put money in the pockets of those who have the greatest marginal propensity to consume: those who earn less, because they spend practically everything they receive, and immediately, in the local market.

In Argentina, this profile corresponds exactly to retirees, workers in the informal sector and formal salaried workers with medium and low incomes. They are the three broken links in the consumption chain.

👵 Pension cuts as a brake on consumption

Retirements and pensions absorbed 25.3% of the total adjustment in 2024. The initial devaluation of the peso in December 2023 – a jump of 114% – liquefied fixed incomes in real time. Although retirement mobility later recovered some ground, the government vetoed in August 2024 a law of Congress that would have more aggressively recomposed pensions.

A retiree who receives the minimum salary or just above it does not save: he spends everything on food, medicine and basic services. Every additional peso that reaches that pocket almost immediately becomes local economic activity, VAT collected, a grocer who sells more and hires someone. Each weight cut makes the reverse path.

💼 The informal economy: 40% of the labor market that does not exist for the system

According to the OECD, informality in Argentina is high in international comparison. Argentina's social protection system has almost universal pension coverage in terms of access, but it is financed through high social security contributions that raise the cost of creating formal employment. The result: a labor market where about 40% of active workers operate in the informal sector, without contributions, without access to formal credit, without a safety net.

These people produce, sell, serve—they sustain entire microeconomies in popular neighborhoods—but they do not exist for the tax system or for the financial system. They cannot access bank loans, they will not qualify for a dignified retirement, and their consumption does not generate the multiplier effect that the registered worker does.

Incorporating them into the formal system – simplifying burdens, creating progressive regimes, lowering the labor cost of the first links – is not an expense: it is an investment that expands the tax base and the consumer market simultaneously.

🏢 The RIGI: mortgaging the future to attract the present?

The Incentive Regime for Large Investments (RIGI) is probably the most structural and controversial measure of the Milei government. In terms of design, it seeks to attract foreign direct investment to strategic sectors – energy, mining, hydrocarbons – by offering a menu of tax and regulatory benefits for a period of up to 30 years: a reduction in income tax to 25%, guaranteed tax stability, free availability of foreign currency and access to foreign markets without restrictions.

The IMF noted that RIGI has already attracted investment commitments of $12 billion. The regime's defenders argue that Argentina needs capital to develop Vaca Muerta, lithium and other natural riches that for decades were underdeveloped. They are not wrong in the diagnosis.

But the debate is about the asymmetry of the treatment. While the large companies benefiting from the RIGI have access to direct external financing, guaranteed regulatory stability for three decades and a substantially lower tax burden, Argentine SMEs – 99% of the country's business fabric – face the highest tax burden in their recent history.

The question that Argentine society has the right to ask itself is: what is left for the country when an international consortium extracts lithium or oil with guaranteed fiscal stability for 30 years? The answer depends on how much is negotiated in terms of local employment, national suppliers, technology transfer and royalties. If these conditions are not well agreed, the RIGI may become the largest legal business in Argentine history for its beneficiaries... and a mortgage for generations to come.

That Vaca Muerta and lithium develop is desirable and essential. That they do so under conditions that structurally benefit Argentina – and not only the shareholders of Amsterdam or New York – is the difference between a state policy and a liquidation of strategic assets.

💡 Surplus is not a panacea: the state is not a company

The official discourse celebrates the fiscal surplus as if it were the end in itself of economic policy. "Zero deficit" is repeated like a mantra, as if the accounting balance automatically guarantees the well-being of the population. This conceptual confusion is, perhaps, the most costly intellectual error of the current model.

A private company aims to accumulate capital: earn more than it spends, grow, distribute profits to its shareholders. The logic of the surplus makes sense in that context. But the State is not a company. Its function is not to accumulate: it is to allocate resources to maximize collective well-being, to provide the public goods that the market does not provide on its own – education, health, infrastructure, security – and in times of economic contraction, to act as a demander of last resort to prevent the recession from feeding on itself.

The economist John Maynard Keynes formulated it clearly in the 1930s, looking at another Great Depression: when all private agents withdraw simultaneously, the sum of rational individual decisions produces an irrational collective result. The State, the only agent that can act against the current, must do so. A surplus in a context of deep recession is not a virtue: it is procyclical and aggravates the problem.

The relevant nuance is that Argentina cannot ignore its restrictions: decades of deficits financed by issuance generated structural inflation that destroyed the purchasing power of several generations. It is not a question of returning to irresponsible spending. It is a question of finding the balance between fiscal sustainability and the reactivation of the internal market. That balance exists; Finding it requires creativity, not dogmatism.

🔄 The recovery that does not come for everyone

The data for 2025 show mixed signals. GDP grew by about 4.3% annually, driven by agriculture, mining and energy – the sectors benefited by the RIGI and the record harvest. But that growth is partial and concentrated. Manufacturing and construction cooled in the third quarter. SMEs in the food and pharmaceutical sector recorded significant job losses. The dynamism does not spill over.

This is the scenario of a two-speed economy: an Argentina that exports raw materials and energy resources with record numbers, and another Argentina of shops, workshops, private clinics and medium-sized factories that has not yet recovered the level of activity of 2022.

🚀 The explosion of possible consumption: what is needed

The reactivation of domestic consumption does not require magic or a new heterodox experiment. It requires the application of known, gradual and bankable mechanisms:

📌  Real recomposition of pensions: the average pension must recover genuine purchasing power, not just keep track of inflation that has already subsided. Every additional peso that comes to a retiree is spent entirely in the local market.

📌  Income policy for the formal sector: registered wages lost ground compared to the devaluation of December 2023. A pattern of real recovery, albeit gradual, stabilises demand and reduces social conflict.

📌  Incentivized formalization of informal employment: reducing the labor cost of the first links of formal employment – social monotax, simplified regimes – expands the consumer base and the tax base simultaneously.

📌  Productive credit for SMEs: Of 600,000 registered companies, only 62,000 accessed guaranteed credit in 2025. Scaling up that access is cheaper than any foreign investment incentive plan.

📌  Strategic public works: road, water and energy infrastructure have a proven multiplier effect. Each peso spent on public works generates 1.3 to 1.8 pesos of economic activity. Freezing it in the name of fiscal balance is a false saving.

📌  Equity in the tax burden: while SMEs pay twice as much as RIGI beneficiaries, competition is distorted from the beginning. Leveling does not mean destroying incentives for large investment; it means not suffocating the business fabric that employs 70% of registered workers.

🎯 Conclusion: the balance that is missing is not only fiscal

The Argentina of 2026 achieved something that seemed impossible two years ago: lower inflation from hyperinflationary levels and eliminate the fiscal deficit. Those are real achievements that deserve objective recognition. No one in their right mind can defend the model of unfunded spending that led to inflation of 211% per year in 2023.

But an airplane doesn't fly with a single engine. Macroeconomic stability is a necessary condition, not a sufficient one. The other engine – domestic consumption, the domestic market, aggregate demand – is off. And as long as it remains off, factories will continue to operate at 54%, shops will continue to close, young people will continue to emigrate and record harvests will continue to be good news for export ports... and neutral or negative news for the ordinary citizen who does not perceive any direct benefit.

The challenge for the government – of any Argentine government at this stage – is to demonstrate that fiscal discipline is compatible with inclusive growth. That the surplus can coexist with decent retirements. That attracting foreign investment does not require trampling on the local businessman. That low inflation can go hand in hand with salaries that recover purchasing power.

That demonstration has not yet occurred. The countryside produces like never before, reserves are growing, the country risk has dropped, and even so the Bell Ville baker sells fewer croissants than in 2022. That distance between macro indicators and micro reality is the real pending diagnosis. And the citizen – who is, in the final analysis, the recipient of all economic policy – has been waiting long enough for someone to solve it.

🔍 REFERENCES AND SOURCES

▸ Infobae / EFE: The Argentine economy closes 2024 marked by Milei's drastic adjustment

▸ El Observador: Argentina achieves fiscal surplus after 14 years

▸ FAIGA: SME Situation Report, August 2025

▸ Infobae: The tax pressure of SMEs doubles that of RIGI companies

▸ Expoagro: Oil industry reaches historical record 2025

▸ IngenieroBlancoWhite: Argentina: record harvest 2025/2026

▸ OECD: Expanding social protection and combating informality in Latin America, 2025

▸ Deloitte LATAM: Argentina Economic Outlook, December 2025

▸ The Blender: Utilization of installed capacity fell to 53.8%, Dec. 2025

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