Argentina’s President Vowed to Fix Its Economy. Then Came a Crisis.

For the better part of 20 months, President Javier Milei of Argentina surfed a major wave of optimism, as he appeared on the brink of achieving an economic miracle.

Using tough financial remedies, Mr. Milei, a self-proclaimed radical libertarian, tamed out-of-control inflation and slashed a bloated budget. And even as his painful fixes made life harder for millions of people, his popularity held on hopes that he may finally succeed where his predecessors had stumbled: pulling Argentina out of chronic crisis.

Then, in recent weeks, Mr. Milei found himself facing an economic meltdown so severe — investors had began panic-selling Argentina’s currency, the peso, and ditching Argentine assets — that it fueled panic over a possible default on the nation’s enormous international loans and prompted President Trump to throw his South American ally a lifeline by offering a $20 billion bailout.

Stepping in, the U.S. Treasury said it was ready to do “what is needed” to stop markets from derailing Mr. Milei’s agenda. “President Milei is restoring economic stability after decades of Argentine mismanagement,” said Treasury Secretary Scott Bessent.

Argentina’s current crisis has highlighted the challenges of solving its long-running economic woes, the result of decades of rampant spending and government mismanagement. And it signals that the solutions Mr. Milei offers may be testing the patience of ordinary Argentines, as his economic triage cuts into salaries and pushes up the cost of living.

Mr. Milei was elected in 2023 on bold promises to take a chain saw to public spending and transform Argentina’s economy. He has made notable progress toward some of his goals.

Monthly inflation, which stood at 12.8 percent before Mr. Milei took office, has fallen below 2 percent in recent months. By firing tens of thousands of government workers and slashing spending in different areas, including welfare and research, he has shrunk the bureaucracy and balanced the budget for the first time in more than a decade.

Yet, Mr. Milei’s bold bet that his policies would put Argentina on a path to growth has yet to pay off, while the pain of his spending cuts has already set in for millions of people.

As job losses have piled up and consumer spending has cooled, Argentina’s economy has slowed in recent months, stoking fears of a recession. Nearly a third of Argentines live in poverty, as cuts to subsidies for transportation, soup kitchens and medications have made it harder to make ends meet.

And, economists say, in an effort to swiftly address Argentina’s inflation and overspending, Mr. Milei has made missteps that have threatened to derail his plans.

A cornerstone of his agenda has been removing government crutches that for years propped up Argentina’s currency, the peso. Mr. Milei rushed to do this early on by slashing the value of the peso and, later, introducing policies aimed at aligning it with foreign exchange markets.

But Mr. Milei, experts say, has failed to build up enough foreign currency reserves that Argentina’s central bank needs to defend and stabilize the peso’s value during panicked bouts of selling, like the one that battered the currency this month.

Argentina’s central bank has stepped in and sold its scarce reserves to avoid a crash in the peso over the past few weeks, triggering worries that the country would struggle to repay its international loans. It has a long history of defaulting on loans.

Mr. Milei’s political credibility has also suffered as a result of corruption scandals that have ensnared his sister, Karina Milei, who is regarded as his most powerful adviser. Mr. Milei’s party was hit by a stunning loss in a key provincial election this month. A defiant Congress has also pushed back on his budget plans.

There are sign that ordinary Argentines are also becoming increasingly frustrated with Mr. Milei’s economic approach. Thousands have taken to the street protesting spending cuts, and a poll this month showed that roughly 54 percent of Argentines disapprove of his leadership, up from 44 percent in June, according to the survey by AtlasIntel.

“Austerity is hard to swallow,” said Andrei Roman, chief executive officer of AtlasIntel. “And then at some point people get tired of waiting and they feel impoverished and they want to get out of it.”

When he was elected, Mr. Milei blamed Argentina’s economic woes on corrupt politicians who had spent recklessly for decades, warning things would most likely get worse before they got better. While his promises initially appealed to Argentines eager for change, many now appear to be wavering.

For Leonardo Gabriel Ramírez, a 27-year-old liquor store clerk in Buenos Aires, Mr. Milei’s policies have not been all bad, but their cost has fallen squarely onto the poor. “My grandmother can’t afford her medicine,” he said. “All they do is support the wealthiest.”

Mr. Trump’s unusual decision to come to Argentina’s rescue, despite his promises to put American interests first, deepens the bond between the American president and his most enthusiastic South American ally.

Mr. Milei has gushed about Mr. Trump, mirrored his attacks on “woke leftists” and followed his lead on foreign policy even when it has raised eyebrows. As the first world leader to visit Mr. Trump after the U.S. election, he danced around Mar-a-Lago and told the crowd, “Today, the world is a much better place.”

Mr. Trump, in turn, has called Mr. Milei his “favorite president,” praising him for seeking to “Make Argentina Great Again.”

At the same time, Mr. Trump’s favor could carry its own political costs for Mr. Milei. Many Argentines remain deeply distrustful of the United States after decades of American meddling in Latin American.

For now, the U.S. rescue plan has bought Mr. Milei some time. Yet, “no amount of U.S. firepower will be sufficient” if Mr. Milei doesn’t correct course with an eye to long-term economic stability, Mr. Werner, of the I.M.F., said. “This financial package needs to be tied to changes in policy.”

Lucía Cholakian Herrera contributed reporting from Buenos Aires.