Despite an extraordinary show of financial backing from the United States for President Javier Milei’s libertarian reform agenda, Argentina’s upcoming October 26 elections have emerged as the primary risk to the country’s current market surge.
Investors remain concerned that Washington’s support alone would not ensure political stability or public favour for Milei’s party.
Since entering office in December 2023, Milei’s combination of severe spending cuts and a laser focus on lowering inflation has earned him acclaim from investors.
His administration has produced some of the strongest returns among emerging economies, and his right-wing policies have strengthened connections with the Trump administration in the United States.
However, economic optimism is increasingly at variance with Argentina’s volatile political reality.
Market optimism meets political turbulence
The approval ratings of Milei, a key indicator for investors, have been affected by several electoral defeats, as well as corruption accusations against some members of Milei’s inner circle.
The scandals have revived fears of a paralysed government, with the peso and government bonds falling sharply in recent weeks.
In the midterm vote, which Milei can use to expand his fragile presence in Congress, the presidential candidate of La Libertad Avanza will face an important test.
However, without more powerful legislative support, Milei’s sweeping austerity and free-market reforms may run aground, jeopardising his plans for a radical restructuring of South America’s second-largest economy.
Long histories of financial crises and debt defaults in Argentina continue to overshadow the reform process.
Fears that the US lifeline will end
Last Thursday, the markets briefly celebrated after the US Treasury announced it had purchased an unspecified amount of pesos on the spot market and had finalised a $20 billion swap framework with Argentina’s central bank.
The decision represented the first step toward a more substantial US role in the success of Milei’s stabilisation programme.
The rally was short-lived. But, with local markets shut for a holiday on Friday, Argentine international bonds and US-listed stocks surrendered at least some of the gains they made on Thursday.
The market labelled the volatility as a reminder that economic stability cannot supersede political fragility, particularly when the domestic media is full of headlines on corruption.
The US intervention has, however, provided Milei with a brief reprieve amid rising uncertainty.
However, analysts are warning that the Treasury’s ability to support the markets of Argentina will begin to run out of steam if the political crisis deepens or if investors start to doubt Milei’s ability to govern.
Election key to Milei’s reform agenda
Polls show voters’ priorities have changed markedly since then. And corruption has become the number one public concern.
Opposition Peronists are trying to capitalise on that sentiment after a surprisingly strong performance in last month´s Buenos Aires provincial elections — a result that sent markets tumbling and raised concerns over Milei´s national appeal.
Keeping the market steady has now become critical for the government to claw back the narrative with the public.
Scandals, including Milei’s sale of the cryptocurrency, which exploded after the fact, and a separate bribery investigation that exploded before it, have shaken faith in his own presidency.
The new US support package presents Milei with an opportunity to reset that narrative.
Argentine opinion has been split over Washington providing a financial backstop, political observers note, but the electorate that Milei most needs to turn out supports the idea.
Backed against the wall, the lower house of Congress recently approved a bill restricting the power of presidential decrees, a step that could drastically lessen Milei’s capacity to implement reforms by law.
Currently, as legislative pushback bubbles up, the midterms have morphed into the centrepiece of his economic edge-up.
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