From abyss to Olympus – and back down?

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fter months on the edge of the abyss, Argentine society seems to have managed to retreat back to a place of perceived safety. No longer does the sensation that things were about to implode dominate the conversation. The peso-dollar exchange rate, Argentina’s traditional fear gauge, isn’t front and centre given an expectation of impending doom, even if it does remain near the top of the floating bands set by the Milei administration together with the International Monetary Fund. A political catastrophe – such as an early termination of the presidential term – that would result in social unrest is no longer a potential (even if quite improbable) scenario. For the time being, Javier Milei has been returned to the political Olympus, his reformist mandate restored, along with his energy. The question now is, where do we go from here?

The above description is about the reset of majority expectations that occurred after the La Libertad Avanza coalition secured a victory in last month’s national midterms, including a win in Buenos Aires Province over the pan-Peronist front Fuerza Patria led by Axel Kicillof and Cristina Fernández de Kirchner. Milei pawned his political career in the United States on the basis of his ideological proximity with Donald Trump – the bet paid off handsomely as US Treasury Secretary Scott Bessent masterfully executed a series of trades that backstopped the peso while aggressively lowering Argentina’s country-risk rating. Not only did Bessent come out on top – he also set the table for Milei’s Argentina to return to international debt markets, which could eliminate the need for US taxpayer funding, as JPMorgan CEO Jaime Dimon explained this week. But Argentina is by no means out of the woods yet. Milei, feeling victorious, has yet to demonstrate how he will fix the mess he got himself into. Rather, he seems to be doubling down on everything.

From a political standpoint Milei’s initial moves indicate that he is empowering internal hardliners. Newly departed Cabinet chief Guillermo Francos had been given a lead role the night of the electoral victory and he quickly delivered, securing a meeting with 20 provincial leaders to shore up support for Milei’s reformist agenda. Then he was ejected from the government, together with Interior Minister Lisandro Catalán. They were replaced by Presidential Spokesperson Manuel Adorni and national deputy Diego ‘Colo’ Santilli, Milei’s headline candidates for Buenos Aires City and Buenos Aires Province this year, respectively. The former is a libertarian purist whose allegiance is unquestionable. The latter has proven to be a malleable professional politician who fully embraced the jump from PRO to LLA and quickly won the full trust of Milei. Up until recently Santilli had been one of PRO’s leading negotiators as ex-president and party chair Mauricio Macri agreed with Javier and Karina Milei to join forces in order to defeat Kirchnerism. Now he appears to be just one more example of a political convert, joining the ranks of Security Minister Patricia Bullrich, Defence Minister Luis Petri, Economy Minister Luis ‘Toto’ Caputo, and Deregulation & State Transformation Minister Federico Sturzenegger, to name just a few top-level officials.

It remains to be seen whether the Milei administration will embrace a posture of negotiation as part of its attempts to garner support for its ambitious reforms — labour, tax and pensions. Such changes are what International Monetary Fund chief Kristalina Georgieva has been asking for all along and apparently what Bessent believes in as well. This implies that Adorni will streamline the Cabinet, while Santilli negotiates with Congress and provincial governors, potentially exchanging some level of funding for votes. Yet the empowerment of Presidential Chief-of-Staff Karina Milei suggests that the strategy of imposition, rather than negotiation, could be the preferred course of action. Sister Karina seems to have overcome her internal adversary, controversial political strategist Santiago Caputo, who up until very recently had been leaking information about a potential Cabinet role for himself (supposedly Cabinet chief or interior minister). The level of internal bickering is odd, together with Caputo’s operational capacity from a communications standpoint. Gerardo Werthein, who resigned as foreign minister and was replaced by Pablo Quirno, left under heavy pressure from Caputo’s media operations. Francos also complained publicly about Caputo’s pressure. And Justice Minister Mariano Cúneo Libarona, who quit but hasn’t left yet, has his portfolio under the effective control of his deputy, Sebastián Amerio, who responds to Caputo. Something smells fishy, which appears to be the case all the time when analysing Santiago Caputo.

With Milei reinforcing the identity of his libertarian cabinet, hollowing out Macri’s PRO, and promising to sustain the economic policy path, will anything change? The unfavourable result in Buenos Aires Province in September blew the lid off of a series of macroeconomic imbalances that nearly cost Milei his head. The main culprit, according to many economists, was an overvalued peso as an “anchor” to keep down inflation (a typical strategy in Argentina that has always ended in a loud explosion). This created a series of knock-on effects that ultimately pushed the country into recession and real purchasing power came crashing down. Rather than acknowledging that there may have been mistakes, MIlei and Luis Caputo have re-confirmed their plan is adequate and blamed Kirchnerism for market jitters. Outside of external aid it is difficult to imagine how the Central Bank will buy reserves while the eternal promise of massive investment inflows appears unrealistic. With economic growth concentrated in extractionist sectors, it isn’t clear how consumption will recover nor how the labour market will become competitive.

Milei has a historic opportunity to adapt his economic model and political style in order to build circumstantial majorities around his reform agenda to put Argentina on a sustainable path. But he quickly jetted off to the United States to give more speeches and take selfies with supporters. Like most recent Argentine presidents, they are better received abroad than domestically, where they must deal with the daily vicissitudes of government. Milei seems to have managed to shake off a series of corruption scandals too, starting with the ‘$LIBRA’ crypto-scam, the Diego Spagnuolo audio files about graft at the ANDIS national disability agency and José Luis Espert’s financing by a member of a drug-trafficking ring who has recently been extradited to the US. But unless Milei gets the economy going, he will have to come up with new answers as to why many Argentines are falling short with their personal finances.

The President would do well to remember his moments close to the abyss only a few weeks ago. Indeed, each of his recent predecessors had moments of apparent invincibility and have all come crashing down. Fernández de Kirchner, already jailed under house arrest for corruption charges, is now facing the infamous ‘Cuadernos’ corruption notebooks trial. Macri, investigated incessantly under the Fernández-Fernández administration, has been apparently made politically obsolete with Milei humiliating him time and time again. Alberto Fernández is a political candidate with the highest negative rating in his peer group, which is extremely negative. 

Back in the proverbial Olympus, Milei is flying high. For now.