On the evening of October 6th, Argentina’s president Javier Milei performed an arena rock show, thrashing out nine songs in front of 15,000 fans in Buenos Aires to launch his new book, The Construction of a Miracle.
“I want to thank The Forces of Heaven [a new political grouping formed to support him],” roared the libertarian economist, who was once in a Rolling Stones tribute band. “Because victory in battle doesn’t depend on the number of soldiers, but on the forces that come from heaven.”
At exactly the same moment, Milei’s economy minister Luis Caputo was in Washington, appealing for help – not from heaven, but from the US treasury, as a run on the peso threatened to sweep his “miracle” away.
A shock landslide loss at a regional election and a series of congressional defeats plunged Milei’s pro-business administration into crisis last month. As spooked investors sold off Argentinian assets, the authorities burned through more than $3 billion (€2.6 billion) of scarce dollar reserves to prop up the peso.
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Fears mounted that Milei would be forced to devalue the currency’s controlled exchange rate, threatening Argentina’s hard-won macroeconomic stability just before critical legislative elections on October 26th.
But US president Donald Trump’s US treasury stepped in. It sold dollars in Argentina’s currency markets and announced a $20 billion swap line with its central bank, staving off an immediate devaluation.
“Trump saved him,” says one prominent chief executive in Argentina, who asked for anonymity in order to discuss Milei freely. “We came very close to all this ending badly ... because of arrogance, because of weakness in his team.”
Milei’s problems, however, have not disappeared. After a relatively successful first 18 months, in which he tamed severe inflation, balanced the budget and relaxed long-standing currency controls, analysts say recent political and economic missteps have badly weakened his government and endangered his free market reform drive.
[ Irish Times view: Milei's chainsaw breaks downOpens in new window ]
Milei has alienated potential allies in opposition parties, isolating his La Libertad Avanza (LLA) party, which holds fewer than 15 per cent of congressional seats. He opted not to rebuild the central bank’s hard currency reserves, preferring to support the peso in order to keep inflation down.
Three high-profile corruption scandals have disillusioned voters, as did a slowdown in the economic recovery that Milei promised would follow his tough austerity. Economic activity has been contracting month on month since May, and the Torcuato Di Tella University predicts Argentina will soon enter a technical recession.
This month’s legislative elections, and the days after, will be a make-or-break moment. Milei hopes to expand his party’s presence in congress and prove his popular mandate. Although pollsters’ percentage vote share projections have remained in a range from the low 30s to the low 40s, LLA’s lead has narrowed as support for the left-wing Peronist coalition, known as Fuerza Patria, has increased.
Even after the US intervention, the peso has continued to slide to record lows as local investors snap up the treasury’s dollars to hedge against a bad election performance by the government. Markets are also nervous about a growing political backlash in the US against the bailout and cryptic comments from Trump about future support being contingent on election results.
“There is so much pessimism that the currency crisis can only be resolved with a devaluation, a return to exchange controls, or an okay election result for the government, not too far below 35 per cent,” says Ramiro Blazquez Giomi, a strategist at StoneX financial services group.
Whatever the result, Milei is under pressure to quickly strengthen both his currency regime and political leadership. Mistakes by previous right-wing governments led to the dramatic implosion of reform efforts in the 1990s and 2010s.
“The last few months have been a reality check,” says Juan Cruz Diaz, managing director of Cefeidas political consultancy.
“There’s no more room for triumphalism.”
Waning enthusiasm
Natalie Ríos, a teacher from Avellaneda, a town near Buenos Aires, voted for Milei as president in 2023, hoping he would correct the “disastrous” management of the previous left-leaning Peronist government.
Milei has started to deliver. His sweeping cuts to public spending and controlled exchange rate policy have slashed annual inflation from a peak of 289 per cent in early 2024 to 32 per cent now. That stabilisation allowed Argentina to exit a recession and helped 2.8 million people out of poverty.
But it has been painful. “I didn’t realise it would affect the middle class so much. I’ve never struggled to make ends meet before,” says Ríos (50), citing salaries and pensions that have fallen in real terms for millions of Argentinians. “I’ve got into so much debt that I had to sell my car ... I don’t know if I could vote for them again.”
Waning enthusiasm and low turnout among right-leaning voters was the biggest factor, pollsters say, in the libertarians’ 13-point loss last month to the Peronists in Buenos Aires province, where nearly 40 per cent of Argentinians live.
Analysts say the government’s focus on lowering inflation began to weigh the economy down this year. Below-inflation wage increases negotiated with Argentina’s powerful unions in early 2025 reduced consumers’ purchasing power, while local industries shed jobs as the stronger peso and lower tariffs favoured imports.
In July the central bank sharply raised short-term interest rates and bank reserve requirements in order to keep the peso strong, reducing businesses’ access to credit.
Earlier this month, the IMF cut its 2025 growth forecast from 5.5 to 4.5 per cent, a downgrade that suggests Argentina’s economy is now contracting after a strong rebound in the first part of the year.
“The economy ground to a halt ... because of the monetary and FX policy, and all just before the elections,” says Eduardo Costantini, a billionaire real estate developer. “It was one of several unforced errors that proved damaging.”
Milei’s supporters say it is unreasonable to expect the government to solve Argentina’s deep-rooted economic problems in two years. “It’s true things are not a lot better than they were before, but we are on the right track,” says Leonel Lavallén (23), a pest control worker from rural Cordoba province who attended Milei’s rock show this month. “If we give up now, all our sacrifices will be in vain.”
But the lacklustre economy is not the only factor turning off voters. The president, whose anti-corruption credentials were a key part of his appeal in 2023, is under investigation by a federal court for promoting a new cryptocurrency whose value soared and then plummeted. Prosecutors say it may have been a scam by its creators.
Three weeks ago, the libertarians’ top congressional candidate for the midterms withdrew over his ties to a businessman who has been indicted by US authorities on drug trafficking charges.
Most harmful, analysts say, was a controversy involving Milei’s sister and chief of staff, Karina. In August local media published audio, attributed to a government official who had previously worked as Milei’s personal lawyer, discussing Karina taking bribes from a government medicine supplier worth 3 per cent of their contract.
The president stayed silent for a week, then said “everything [the official] says is a lie”. He later dismissed the tape as an AI-generated fake before finally claiming the bribery allegation didn’t make sense: “Would you take 3 per cent when you could take 100 per cent?”
Polls suggest a majority of Argentinians believe the claims. Milei had to be evacuated from a rally shortly after the scandal broke as opponents pelted him with stones.
“I’m sure they did steal,” says Matías Rino (47), a security guard and undecided voter, who has been considering voting for the libertarians after casting a blank ballot in 2023. “Politicians just don’t think about us. They’re all the same.”
Milei’s approval ratings have fallen to about 40 per cent, compared with about 50 per cent for most of his first year, according to pollster Trespuntozero. For a president who relies heavily on popular support for political strength, the trend is worrying.
“Until recently, Milei has had a submissive congress, quieted by public opinion being broadly on his side,” says Ana Iparraguirre, a partner at strategy firm GBAO.
“If that wears thin, he has to start really negotiating with Argentina’s political system.”
‘Pure purple’ plan
When Milei was elected president in 2023, he had no executive experience. His party was just two years old, and held less than 15 per cent of seats in congress and none of Argentina’s 23 provincial governorships.
Despite his minority in congress, Milei defied expectations, striking an alliance with the right-wing Propuesta Republicana (PRO) party of former president Mauricio Macri, wielding his popular mandate and using executive decrees to bend congress to his will.
He brought some political veterans into his team, who struck deals with moderate governors and lawmakers that enabled him to enact major deregulation measures and spending cuts.
Then he cast that political pragmatism aside. Karina Milei, who had no political experience before her brother’s election to congress in 2021, took charge of expanding LLA into a national force in advance of this year’s provincial and national elections.
She adopted a “pure purple” strategy, running candidates from the violet-branded party in most provinces and waging aggressive campaigns against the moderate parties Milei had previously relied upon to win votes in congress. The president, meanwhile, labelled lawmakers who voted against his Bills “enemies of good Argentines” and “baboons”.
“They wanted to stamp out other voices so they could be the only alternatives to [leftwing Peronism],” says Ignacio Torres, the PRO governor of Chubut province, who cofounded a “third way” electoral coalition with five other governors for the midterms.
“Many of us, in a space that supports much of the government’s reforms, now find ourselves being opponents because we won’t submit to their insults.”
Milei has lost dozens of votes in congress this year, as opposition lawmakers pushed through spending increases for pensions, healthcare and education. The defeats unnerved Argentina’s always volatile markets, contributing to the recent sell-off.
But economists say the political turbulence, common in election years, would have been less damaging had investors not also been nervous about a core economic policy.
Milei’s effort to keep the peso strong to curb inflation, which continued even after he replaced a fixed exchange rate with a semi-floating exchange rate band in April, has made it impossible for the central bank to accumulate enough dollars to rebuild its foreign exchange reserves.
The monetary authority has just $5 billion in reserves excluding liabilities, mostly from an IMF loan. The scarcity has made investors highly sceptical that Milei can maintain the strong peso, pay for imports and repay about $17 billion of dollar-denominated sovereign debt that will fall due next year unless creditors roll it over.
“Central bank reserves, like political allies, are something you build up in the good times so you can use them in the bad times,” remarks Nicolás Dujovne, who served as economy minister in a previous centre-right government. “The government lacked caution in that respect.”
It remains to be seen how much Trump’s support can offset that lack of stability. The $20 billion currency swap line announced by US Treasury secretary Scott Bessent earlier this month will give Argentina’s central bank access to dollars, though officials have not yet confirmed its activation. Bessent is also trying to arrange a $20 billion facility funded by private banks and sovereign wealth funds, to help Argentina make debt payments.
“It’s a game-changer,” says one senior libertarian close to Milei, of Trump’s support. “It gives us the stability to push on, and do the many good reforms we still want to do.”
Investors are not entirely soothed, noting that some US Republicans have criticised aid to a foreign government when the US’s own is shut down. The strength of Trump’s personal commitment to Argentina is unclear. At a recent lunch with Milei, Trump mentioned the election “coming up very soon” and warned “if he loses, we are not going to be generous with Argentina.”
Former Peronist president Cristina Fernández de Kirchner, who is under house arrest after a corruption conviction, has already seized on Trump’s implicit threat to mobilise her left-wing base.
“Argentines, you already know what to do,” she said on X.
Dogfight atmosphere
There are reasons to believe that Milei can recover his footing after the elections. Pollsters say his poor result in Buenos Aires province, Peronism’s stronghold, may galvanise right-leaning voters in the rest of the country.
Regardless of the national result, LLA will almost certainly gain seats in congress because few of its current cohort, mostly elected in 2023, are up for grabs.
Caputo, the economy minister, told an event in Washington last week the government planned “to do a lot of work to get the necessary coalition” to pass structural reforms, such as tax and labour bills, which economists say are needed to boost growth.
Milei has already held meetings with Macri, tentatively reviving an alliance he discarded during regional elections. Once the dogfight atmosphere of the campaign dies down, centrist figures may also be open to co-operating with the government, which would calm jittery markets.
“We think a new political process starts after October 26th,” says Raúl Jalil, the moderate Peronist governor of Catamarca province. Leaders in mineral- and energy-rich provinces such as Catamarca will call on Milei to rethink his near blanket ban on public works spending and restart “strategic transport and energy projects needed to boost investment”, Jalil adds.
If Milei can demonstrate political strength, the pre-election crisis may dissipate, says Santiago Mignone, an Argentinian partner at PwC and president of local business lobby Idea.
“Argentines are world champions at overreacting,” he says of the recent turmoil. “The US support will give the government a buffer to absorb the overreactions of the market.”
A reasonably good performance at the elections would allow the government to “use the US assistance to make aggressive changes and float the peso” without making a “big devaluation”, says Jorge Vasconcelos, head researcher at Argentinian think-tank Ieral.
Still, Milei’s challenges are massive and his ability to resolve them remains in question. Analysts are waiting to see whether the crisis of recent months has convinced the president of the need for changes.
“He has been pragmatic in the past ... but he has a tendency to defend himself and retreat in the face of adversity,” says Sergio Berensztein, an Argentinian political consultant. “That could be a problem.”
The government may try to avoid addressing investors’ concerns about the peso. Caputo has insisted that the exchange rate bands will not be abandoned while Bessent called the currency “undervalued” earlier this month.
The smaller the libertarians’ vote share, the harder it will be to convince the opposition to support their agenda without major concessions on Milei’s flagship fiscal balance policy.
A poor result might leave the government unable to pass further reforms, limiting its ability to revive Argentina’s weak economy, says Nery Persichini, head researcher at Argentinian brokerage GMA capital.
“If the government ends up in that defensive position, the next two years are going to feel very long.” – Copyright The Financial Times Limited 2025
