A big win in midterms would be bad news for Milei

Two months into the agreement with the International Monetary Fund (IMF) and three months from the October midterm elections, the President Javier Milei administration continues to prioritise, above all other issues, showing Argentines that it can continue to lower inflation. For two consecutive months now – May and June – it has attained solid below-two-percent-a-month figures (1.5 and 1.6 percent, respectively). This should be enough to win the midterms, but the size of the victory matters.

Would a big win be good for Milei?

The short answer, of course, is yes. Foreign investors are all eager to see that the Argentine people support the policy course of fiscal austerity taken by the Milei government. That would be an indication, they argue, that something has changed in Argentina and that the evil populists will not come back any time soon.

Short answers, however, tend to be deceptive — or too simplistic at best. The economic consensus indicates that three anchors sustain the inflation slowdown: less government spending, lagging wages and pensions, and an over-appreciated peso. A big electoral victory would make the administration feel it has been given a blank cheque from the public to speed up on this path.

However, the minute the public votes to validate a leader, new demands appear. In the near future employment is likely to become an issue for the second half of Milei’s (first) term. Since Milei took office in December 2023, unemployment has gone up almost 40 percent, from 5.7 percent in the last quarter of 2023 to 7.9 percent in the first quarter of 2025. In populous places like Buenos Aires Province, it is almost reaching two digits. Jobs have been lost in almost all the country’s 24 districts (including Buenos Aries City), except for the energy- and mining-rich provinces of Neuquén (Vaca Muerta), Río Negro, Chubut and Mendoza.

A massive victory might also consolidate Milei’s flying-solo political mode. His “fight-everybody-all-the-time” game plan is a good defensive strategy but it is difficult to imagine that it could leave an enduring trace on Argentine reality unless it is the result of persuasion rather than imposition. This applies to the reforms Milei is promising to carry out next: labour, pension and tax legislation, always dear to the business establishment but sensitive for the public.

Over the first almost two years, Milei profited from a public and a political establishment still in awe at both the appalling results of the last two presidential administrations (Mauricio Macri and Alberto Fernández) and Milei’s victory. But the shock is subsiding and Milei will not be able to get away with simply blaming the past for tough present conditions for much longer.

Even more importantly, a huge victory (“La Libertad Arrasa” or “Liberty Sweeps,” as the President keeps saying) might encourage Milei and his team to stick to the peso appreciation which is both keeping inflation down and pleasing the upper and high-middle classes of Argentina — so keen on saving in US dollars to buy houses and cars or travel abroad.

Recent history shows winning big is a bad incentive for governments. The first season of the new television series on former president Carlos Menem ends in 1995, the year he won re-election with half the vote. Despite many signs of exhaustion, Menem stuck to his one-peso-one-dollar Convertibility peg, which kept the peso strong and which even its creator Domingo Cavallo favoured amending. Neither Menem nor the Peronists won another election until the scheme tragically exploded in December 2001.

A decade later, in 2011, then-president Cristina Fernández de Kirchner won her re-election with 54 percent of the votes, also with a peso appreciation underway. Instead of correcting, she introduced tight capital controls known as the “cepo” or clamp. Fernández de                   Kirchner’s Peronists lost three consecutive elections after that.

More importantly in comparative terms to the present, in 2017 then-president Mauricio Macri’s Cambiemos coalition won the midterm elections with 40 percent of the votes, also on the back of an overvalued peso. Macri sought to continue with the scheme, eyeing his re-election in 2019, only to face a currency crisis a few months later. Macri never won another election and is now almost a political retiree.

A good but not resounding victory might give Milei a kind reminder that his job is far from done and that some of the things that worked for him until now might not work for the road ahead. It would be up to him to read the numbers well.