On raucous outsiders and statesmen

The irruption of the United States in the heat of the electoral campaign in Argentina has the potential to be a game-changer for President Javier Milei. Donald Trump’s decision to fully backstop the Argentine peso in the context of a dangerous run on the currency, together with a hurricane of a political crisis, arrives as a much-needed remedy for the libertarian administration. 

US Treasury Secretary Scott Bessent was personally involved in negotiations with Economy Minister Luis ‘Toto’ Caputo, announcing a US$20-billion currency swap, another potential US$20 billion in public and private debt financing and even engaged in direct purchases of Argentine assets in the open market. The unprecedented move marks a bold break with Trump’s “America First” foreign policy and mimics the historic “whatever it takes” moment when then European Central Bank President Mario Draghi vowed to defend the euro endlessly — many suggest this was the turning-point in the European sovereign debt crisis that had the potential to break the currency bloc. 

But almost immediately, Trump added his usual level of entropy through confusing public remarks that wrecked havoc in financial markets, tying the bailout to the result in contentious upcoming elections: “if he loses, we are not going to be generous with Argentina … if he wins, we are staying with him, and if he doesn’t win we are out.” The confusion forced Milei to come out and explain that US support was guaranteed all the way until 2027, but he failed to fully eradicate doubts.

Was Trump referring to October 26 national midterm elections or did he originally believe this was a Presidential election? It did seem like it a few weeks ago when the US President endorsed Milei for a second term via printed social media post that was displayed like a trophy. Regardless, it is reasonable to imagine that a person in Trump’s position could confuse the Argentine political calendar and that his team was clear on what was at stake in Argentina’s upcoming midterms and successive remaining two years of the Milei administration. To that regard, Bessent noted the Treasury, “reviewed the broad political consensus in Argentina for the second half of President Milei’s term,” which goes in line with the International Monetary Fund's pleas that social and political support are needed to pursue an ambitious reform agenda.

For months now, Milei and his team have decided to tone down the President’s aggressive public appearances and social media presence. He’s spoken about working side-by-side with Congress and provincial governors in order to build the necessary majorities to pass structural reforms. They’ve reached out to ex-president Mauricio Macri, listened to his criticism and could now allow him to play a bigger role in the make-up of the refreshed Cabinet that is expected to be announced after the election. The deformed iron triangle – which appeared to be on the verge of expelling controversial political consultant Santiago Caputo – has regained its shape, with presidential chief-of-staff (and Milei’s sister) Karina Milei forced to backtrack after a tough electoral defeat in Buenos Aires Province.

Santiago Caputo’s role here is interesting in that he’s a freelancer with no formal appointment in the Milei administration who technically reports to Karina’s office. But he has shadow control over large swathes of the state and has been engaged in a silent civil war with her top political lieutenants, Martín Menem and Eduardo ‘Lule’ Menem. Santiago was initially considered the architect of Milei’s electoral victory in 2023 by the President, but later fell in disgrace as territorial disputes emerged and he had the boldness to confront Karina. Once seen as a sort of political commissar in charge of substantiating Milei’s anti-caste rhetoric, he now positions himself as a supposed electoral genius that also has the ambition to actively control important sectors of the government including the SIDE spy agency and the Justice Ministry, among others. ‘Caputito,’ as he is known, is also closely connected with a shady network of characters commanded by Leonard Scatturice, SIDE’s hired lobbyist in Washington and an influential member of CPAC, a conservative think tank that counts with Milei and Trump as members. Suspicions of shady dealings have surrounded the political consultant since the early days of the Milei administration. He’s carefully built a public image aimed at scaring his rivals, both within and outside the government.

Back to the “new and improved” Milei. There’s the question as to whether this will be enough to “win” the election. What does it mean to win? Several months ago, particularly after the surprise victory in local elections in Buenos Aires City, expectations were set of a purple tide that could give La Libertad Avanza substantial legislative muscle, allowing it to dictate quorum and build majorities in Congress. The disastrous result in Buenos Aires Province, together with the economic and political crises that ensued, forced the Casa Rosada to recalibrate. The ambition now is to win, “even by one vote,” while managing to defend the President’s veto power.

While opinion polls have proven to be wildly off time and time again in predicting the vote, there’s a sort of consensus that LLA and the pan-Peronist Fuerza Patria are in a sort of technical tie, each with about a third of the electorate. Another 10 percent could be split between provincial parties and the newly formed coalition of governors, Provincias Unidas, while leftist parties could take about five percent, leaving another 15 percent to divide among smaller parties, undecided voters, blank and null votes. Turnout has been historically low in this year’s local elections, a factor that could tilt the scales, as will the impact of the new “single ballot” system implemented nationally for the first time. Much like in Buenos Aires Province, where municipal leaders showed their muscle to defend the territory, provincial governors will try to leverage their power.

A reasonable scenario, without the appearance of a black swan event, could force Milei back into the pragmatic mode he showed in his first year in office. He would build circumstantial majorities together with the remains of Juntos por el Cambio, the coalition once led by Macri, in order to pass structural reforms, while offering up financing for public works in exchange for support to provincial governments. With the backstop of the US Treasury and a rational macroeconomic approach that doesn’t rely on an artificially overvalued peso, they would regain the trust of the IMF and the market. The self-proclaimed "anarcho-capitalist" could then dream of re-election.

Unfortunately, the Milei administration has shown time and time again they lack the capacity to build sustainable political alliances and that stubbornness on the economic front has led to the repetition of mistakes from the recent past. The President has shown that when political momentum is on his side, he abuses good fortune to castigate political opponents and preach cultural war. Milei repeats that he is convinced of his economic policy path and accuses Kirchnerites of generating instability. He despises anyone who disagrees with him, particularly journalists and economists. Milei continues to defend José Luis Espert, his former headline candidate in Buenos Aires Province, despite convincing accusations of dealings with an accused drug-trafficker and has failed to provide a reasonable explanation for his involvement in the ‘$LIBRA’ crypto-scandal or his sister’s three percent kickbacks scheme in government contracts.

It is difficult to imagine that Milei will just turn the page and evolve from raucous outsider to statesman. Even with the full support of Trump’s USA.