Stocks slump, peso weakens as Milei reels from Buenos Aires Province loss

Financial markets reacted on Monday with sharp falls to the defeat of President Javier Milei’s party in legislative elections of Buenos Aires province.

Milei’s La Libertad Avanza lost by a clear margin in the country’s most populous district, with opposition Peronist candidates winning comfortably.

The President’s party secured 33 percent of the vote, finishing almost 14 points behind the Peronist Fuerza Patria coalition, which prevailed with 47 percent.

The drubbing for Milei's party was far greater than opinions had predicted.

The setback triggered a slump for the peso and share prices in Argentine stocks trading on Wall Street, which fell by nearly 20 percent. 

The Buenos Aires Stock Exchange, meanwhile, opened with losses of more than 12 percent.

Peso plunges

On the currency market, the peso plunged against the US dollar, hitting the ceiling of the government’s exchange band amid sharp volatility. 

Argentina’s currency depreciated by five percent to 1,460 per dollar compared with Friday’s close, while its JP Morgan’s country risk index climbed above 1,100 basis points.

The Milei government had already been forced last week to intervene in the foreign exchange market with Treasury funds to contain the peso’s depreciation, which accelerated amid a corruption scandal implicating the president’s sister and chief-of-staff, Karina Milei.

In April, Argentina secured a US$20-billion agreement with the International Monetary Fund, whose conditions restrict intervention in the currency market using Central Bank reserves.

Argentina, with its long history of economic crises, hyperinflation and defaults, already owes the IMF US$44 billion under a 2018 loan agreement – the lender's biggest ever – on which it has since renegotiated the repayment terms.

Milei, who governs without a congressional majority, faces nationwide midterm legislative elections on October 26.

Sunday’s elections in Buenos Aires Province, which accounts for almost 40 percent of the national electorate, were seen as a crucial bellwether test ahead of the October vote.

Secrecy and concern

Milei led a Cabinet meeting at Casa Rosada on Monday morning, though no details emerged.

He was also joined by Economy Minister Luis Caputo for a meeting with Ilan Goldfajn, president of the Inter-American Development Bank (IDB). 

The meeting fuelled speculation of new financing options. The bank announced plans for a US$10-billion credit line for Argentina over three years back in April, but an agreement has yet to materialise.

Speaking to party activists in La Plata on Sunday night, Milei reaffirmed his government’s economic path, which has entailed heavy cuts to health, education, disability pensions and retirement benefits, among other sensitive areas, in pursuit of fiscal balance.

“There will be no step back in government policy. Not only is the direction confirmed, we are going to deepen it and accelerate it,” Milei declared after the results were announced.

Cabinet Chief Guillermo Francos said on Monday that “it is time for self-criticism, to analyse where we failed and why the macroeconomic results are not reaching people.”

The minister, the only official to speak publicly on Monday, admitted: “There is a gap between what people think and what the government proposes as policy. We are convinced that fiscal balance is the basis of economic growth, but it is also true that the shift from macroeconomics to microeconomics is very important for people who are waiting for concrete results.”

Worst moment

The government is going through its worst moment since assuming office December 2023. 

Last week Congress overturned a presidential veto of a law granting more funds for disability support and is due to consider whether to reverse two others, laws to increase funding for universities and for the Garrahan children’s hospital in Buenos Aires.

Milei has slashed public spending, dismissed tens of thousands of public servants and led a major deregulation drive as he seeks to limit debt, wipe out stubborn inflation, boost growth and replenish foreign reserves.

Inflation control has been one of the government’s successes. Consumer prices have risen 17.3 percent so far this year, compared with 87 percent in the same period of 2024. 

But the austerity cuts have brought thousands out on the streets to protest the resulting hardships inflicted on millions. 

– TIMES/AFP/NA