The administration of President Javier Milei is acutely aware of the scrutiny it faces. Not solely by the “market,” that transient entity made up of countless financial transactions divided into pesos and dollars, but also by its principal political and economic backers located in Washington: the Trump administration and the International Monetary Fund. Argentina’s self-proclaimed “anarcho-capitalist” successfully navigated the first and most pressing challenge by emerging victorious in the national midterm elections, all while operating under significant political and financial strain. The combination of unforced errors and a remarkable triumph for adversary Axel Kicillof in Buenos Aires Province has placed Milei in a precarious position. However, a potential crisis was averted thanks to the explicit backing of US Treasury Secretary Scott Bessent, providing Milei and his Economy Minister Luis ‘Toto’ Caputo with essential leeway. As the year approaches its conclusion, observers are keenly assessing the Milei administration to determine its capacity to fulfill various objectives, especially in terms of its ability to forge consensus within Congress. The outcome in that regard will determine the challenges Caputo encounters in obtaining financing to meet its foreign currency obligations, which are approximately US$10 billion in the first quarter. Milei, consequently, relies on the often-criticized political landscape and his ability to navigate effective negotiations, if he is to emerge unscathed. The divisions were clearly established within Congress.
The 2026 Budget bill, along with a trifecta of reforms, serves as the benchmark for observers assessing Milei and his team’s performance. The initial round revealed a contentious landscape, characterized by a partial triumph in the Chamber of Deputies followed by a subsequent setback in the Senate. In the lower house, under the leadership of Congress Speaker Martín Menem, negotiations with libertarian factions were spearheaded by Interior Minister Diego ‘the Ginger’ Santilli. Both figures are part of the political inner circle, which also encompasses top advisor Eduardo ‘Lule’ Menem and Karina Milei. The President has committed to participation, although the involvement of the contentious strategist Santiago Caputo remains uncertain. The team achieved an initial success by advancing the first budget bill in three years through the Chamber of Deputies; however, they encountered a significant setback regarding the repeal of emergency funding laws for the disabled and state universities. Since assuming office, Milei has experienced a succession of challenging political defeats, including the reversal of vetoes on both matters. Once again, Congress demonstrated its authority while the President responded vocally. Milei expressed his frustration as his team endeavored to determine the subsequent actions, attempting to identify the source of the accountability.
Indeed, they had secured a significant legislative majority of 132 votes, which comprised deputies from La Libertad Avanza, members of Mauricio Macri’s PRO, a segment of UCR Radicals, and several provincial governors. However, they failed to obtain the requisite votes for the contested funds, resulting in a shift of the national budget from surplus to deficit, which represents the foundational error for the Milei administration. The President initially indicated a willingness to veto his own legislation, although he was ultimately persuaded otherwise by ‘Toto,’ who understood that such actions would likely alarm the previously mentioned observers. The inquiry into Milei’s ability to construct circumstantial majorities that lend stability to his reform agenda is crucial for the observers in question. The initial phase of his unexpected triumph in 2023 was characterized by significant ambiguity regarding the capacity of a complete outsider to manage and guide the state from its entrenched difficulties. Doubts arose due to its limited legislative strength and weak regional presence. Considering that slots on candidates lists were sold to generate funds for the campaign and likely other less “noble” purposes, the quality and depth of Milei’s potential team were shrouded in significant uncertainty. Some argued that the President’s temperament made him unsuitable for governance, and this, combined with the ambitious nature of his reform agenda, could lead to an early departure from the Executive. Macri, having provided his backing to the candidate during the concluding phase of the campaign – along with the political machinery and the financial resources necessary to sustain it – was seeking an avenue for involvement. Vice-President Victoria Villaruel observed with a sense of quiet intrigue.
Milei and his team opted to reinforce their position rather than concede. He started to take in Macri’s PRO incrementally, beginning with its presidential ticket featuring Patricia Bullrich and Luis Petri. By capitalizing on anti-Kirchnerite sentiment, he garnered the backing of PRO, certain Radicals, and centrists, along with provincial factions aligned with more amenable governors, to enact legislation such as the ‘Ley de Bases’ mega-reform package, while also at times justifying his emergency decrees and vetoes. He adopted a pragmatic approach, securing concessions from prospective allies while persistently criticizing the “caste” to maintain popular backing. Inflation started to decline. The initial phase seemed to stretch indefinitely, with re-election anticipated as the foundation of a Milei dominance. The dynamics of political trends suggest that what ascends inevitably descends, and this was true for Milei as well. Despite consistently enjoying robust popular backing, his polling numbers began to decline due to a sequence of events that many viewed as unforced errors. The President and his closest political allies maintained a strategy of employing aggressive rhetoric and insults towards those who did not exhibit complete ideological alignment or unwavering loyalty. Corruption scandals have escalated, beginning with the ‘$LIBRA’ crypto fraud, and were subsequently compounded by the dramatic release of audio recordings from the President’s personal lawyer, Diego Spagnuolo. These recordings implicated Sister Karina in bribery and kickback schemes associated with the ANDIS national disability agency. Milei had effectively consolidated the political landscape in opposition to him by vetoing legislation aimed at augmenting the budget for public universities and advocating for emergency funding for individuals with disabilities.
The economy has come to a standstill, as the disinflation process has stalled and economic activity has entered recessionary territory. Market participants detected vulnerability and responded by penalizing the Milei administration for the flawed architecture of its economic policy initiatives, notably the insufficient foreign reserves held by the Central Bank and the overvaluation of Argentina’s peso. The peso-dollar exchange rate has commenced its typical aggressive fluctuations. The Casa Rosada experienced a succession of electoral setbacks in the national midterms, notably a significant loss in Buenos Aires Province to a loosely organized Peronist coalition, which featured Kicillof and former president Cristina Fernández de Kirchner. President Milei secured a second opportunity, emerging victorious in the national midterms by a margin that astonished even the Casa Rosada. They are now required to fulfill their commitments, which will undoubtedly correlate with a significant enhancement in individuals’ wellbeing. Anti-Kirchnerism, coupled with concerns over inflation, is unlikely to maintain the President’s popular support, especially as the repercussions of his “chainsaw austerity” persist in the economy. This indicates that Milei and Caputo are required to adhere to the IMF’s demands in order to advance a reform agenda with enhanced robustness through political consensus and to build up reserves. The value of the nation’s country risk premium will directly influence the cost at which Caputo can secure financing to service the debt. This will be crucial for sustaining the backing of the United States, as Bessent has indicated that the objective is for Argentina to access international debt markets and achieve self-sufficiency. Macroeconomic stability is essential for the administration to facilitate a resurgence in economic activity that will, in turn, be evident in increasing wages. President Milei nearly vetoed his own budget bill, marking an unpromising beginning to the latter half of his term. Now, he must demonstrate that they possess the capability to maintain a pragmatic approach while being “consistently dynamic,” as he often articulates. Or whether he will succumb to his own passions and the vices of the “caste” he so frequently criticizes.