Milei sticks to plan after landslide defeat in Buenos Aires Province

President Javier Milei vowed no changes to his free-market economic programme after a resounding defeat on Sunday to the centre-left Peronist opposition in Buenos Aires Province.

The Peronist opposition came in first in the provincial election, winning about 47 percent of the ballots compared with 34 percent for Milei’s La Libertad Avanza party, with 91 percent of votes counted.

The vote in Buenos Aires Province, the country’s largest and for decades a Peronist bastion, is seen as a bellwether for national midterms next month where Milei aims to boost his party’s current minority status in Congress to further curb inflation and shrink government spending.

“Today we suffered a clear defeat,” Milei said, speaking from his party’s campaign headquarters just outside the provincial capital of La Plata. “We had an electoral setback and we have to accept it.”

In a contrite speech, Milei insisted he would not stray from pursuing a budget surplus or his government’s foreign exchange and monetary policy priorities. But he did vow to embark on a “deep self-critique.”

“The result was undoubtedly worse than the consensus expected,” said Matías Montes, head of strategy at EMFI Securities, referring to investor expectations that Milei’s party might over-perform. Montes nonetheless expects the vote gap to narrow considerably for the October midterm.

When trading opens on Monday, Argentine investors are poised to suffer losses. Traders anticipated that a defeat of Milei’s party by more than five points would spark a sharp selloff in local assets.

Home to over a third of Argentina’s population, Buenos Aires Province has historically swung left to support the Peronist party, including for Milei’s leftist nemesis Cristina Fernández de Kirchner, who was elected to the Senate there two decades ago and is now under house arrest after the country’s top court upheld her corruption conviction.

Fernández de Kirchner, who served two-terms as president from 2007 to 2015, had originally hoped to run for a provincial senate seat on Sunday. Barred from running, she danced and waved enthusiastically to supporters from her capital balcony moments after the preliminary results were made public.

“This puts a stop to Milei,” said Gabriel Katopodis, one of the Peronist candidates in the province.

Peso sliding

Cryptocurrency platforms pointed to a depreciation of the country’s peso currency, even before results were announced, with the peso unofficially trading above 1,400 per US dollar after closing Friday at 1,355.

Argentina’s dollar bonds had already been lagging all emerging-market peers in the past month, with the notes delivering losses of 5.5 percent.

“The scope of the sell-off will depend on the government’s reaction. Given the magnitude of the defeat, only a cabinet re-shuffling will contain the bond price rout,” said Ramiro Blazquez, a strategist at Stonex.

“The libertarians have a chance to recoup terrain in October if they play their cards properly. But they will need to rethink not only their economic policy but, most importantly, their political strategy to regain the initiative,” Blazquez added.

The late October election will see voters renew nearly half of Congress.

Milei faced major headwinds in recent weeks, slumping to his weakest point since the self-described anarcho-capitalist stormed to office in late 2023. His government’s own graft scandal hit in the lead up to the vote.

Last month, local media published leaked audio messages in which the head of the ANDIS national disability agency, who has since been fired, described alleged kickbacks on pharmaceutical purchases benefiting Milei’s sister, Karina Milei. A judge later blocked audios of Karina from being released. A powerful insider, she serves as Milei’s chief adviser. The government has denied any wrongdoing.

Shortly after the scandal broke, the president was pelted with stones during one campaign appearance, while sporadic violence broke out at other stops ahead of voting.

Meanwhile, South America’s second-biggest economy is expected to contract for a third straight month in July and formal jobs have shown a sustained decline since January. Argentina’s peso currency has also slumped to near record lows.

Around 63 percent of the more than 14 million eligible Buenos Aires voters cast ballots on Sunday to elect half the 92-member lower house Chamber of Deputies as well as the 46-member Senate in the provincial legislature. Local city council seats were also up for grabs.

The local election would normally attract less attention, but it took on national importance after Milei suspended primary elections and Buenos Aires Province Governor Axel Kicillof, a Peronist, decoupled the local vote from the national midterm election next month.