Rev up the chainsaw
Javier Milei has won a fresh mandate to remake Argentina
A thumping win for his party in the midterms means his radical economic project gains new strength
Photograph: APIN THE END it was a landslide.
The party of President Javier Milei, Liberty Advances (LLA), won Argentina’s midterm elections with almost 41% of the vote.
The Peronist opposition, including the main party and its regional allies, trailed by nine percentage points.
LLA even won in Buenos Aires province, where they had lost a provincial election by 14 points last month.
The resounding win far surpassed the expectations of pollsters and markets, which clustered around a draw or perhaps a modest victory for Mr Milei.
“Today we pass the turning point,” the president told cheering crowds on election night.
“Today begins the construction of a great Argentina.”
The result gives a jolt of energy to Mr Milei’s radical libertarian reform programme, which has been faltering for much of this year.
He now has an opportunity to reshape Argentina’s economy with sensible macroeconomic management and free markets.
Crucially, he should have the numbers in Congress to defend his presidential vetoes, thereby preventing the left-wing opposition from forcing through heavy spending on their own priorities.
That renews the credibility of his impressive fiscal discipline.
Yet the triumph comes with caveats.
Turnout of 68%, in a country with compulsory voting, is the lowest since 1983.
That suggests many voters remain unenthusiastic about Mr Milei.
The peso will strengthen sharply on the back of the LLA’s victory, but could well come under renewed pressure in the months ahead.
Above all, Mr Milei is still short of the number of seats needed to pass laws that tackle big economic problems such as tax and pensions.
He is in a strong position, but must negotiate skilfully.
Since he took office in late 2023 Mr Milei, a political outsider and irascible libertarian, has pulled inflation precipitously down, in part by making huge cuts to spending.
Poverty has fallen sharply, too.
Yet his chances of a big victory looked to have waned as he battled corruption scandals, the economic recovery stuttered and the peso, which he had tried to keep artificially strong, came under heavy pressure.
In the weeks before the election the Trump administration stepped in to support the currency, which was threatening to crash out of the exchange-rate band in which it had been allowed to float.
The United States stumped up an extraordinary $20bn swap line and made direct purchases of pesos worth perhaps $1.5bn.
This victory moves Mr Milei’s government past a period of deep uncertainty.
LLA ran up big scores in the interior of the country, where it was expected to do well.
In Buenos Aires province the message that this was a choice between Peronism and Mr Milei seems to have resonated.
Even those lukewarm on the president seem to have concluded that, above all, they fear the spendthrift opposition.
Markets will be relieved.
The result dramatically reduces the possibility that Argentina’s fiscal discipline might soon lapse.
Investors will also be perkier about Mr Milei’s chances of re-election in 2027.
As results came in, Argentine stocks traded offshore soared.
Alongside the peso, bonds should also surge.
The win does not mean Mr Milei’s peso problems are resolved for good.
The government needs urgently to accumulate foreign reserves to pay back at least $18bn of its debt that is due in 2026—and the very act of buying dollars would usually weaken the peso.
Moreover, many economists think the peso looks overvalued relative to the fundamentals of the Argentine economy.
Given Mr Milei’s unexpectedly strong position, now would seem the perfect time to fully float the peso and to begin to target inflation using normal monetary policy.
That would reduce the chances of future trouble with the currency and make it easier to accumulate reserves, all without much risk of an immediate inflationary lurch.
But prior to the election the government insisted it would not change the exchange-rate regime.
The band within which the peso floats is widening marginally each month.
Mr Milei may view that as sufficient.
Scott Bessent, America’s treasury secretary, will surely feel vindicated.
Mr Trump had threatened to walk away if Mr Milei lost.
The $20bn swap line will probably stay in place, while Mr Bessent could even make a profit on the pesos the treasury bought.
The bigger question is whether he will push for changes in Mr Milei’s approach, particularly on the exchange rate and monetary policy, or perhaps seek pay back for the extraordinary support that surely contributed to Mr Milei’s victory.
Beyond accumulating reserves to pay back debt, Mr Milei’s other big challenge is now structural reform.
His priorities include cleaning up the byzantine tax system, liberalising the labour market and perhaps overhauling pensions.
All of these require a majority in both the lower chamber and the Senate.
With only half the lower chamber and a third of the senate renewed in the election, Mr Milei still does not have that, so he must build coalitions.
This has not previously been his strong suit, but the big win will help.
Plenty of legislators who might have opposed him will now consider it wise to make deals with the strengthened government.
Mr Milei, who has frequently and graphically insulted swathes of Argentine politicians, may also be changing his tune.
He has cut back the abrasive talk in recent months.
In his victory speech he indicated that he understands that he needs partners.
He proposed new talks with the provincial governors and said that he is willing to work with any party with which he has “points of agreement”.
Election years in Argentina often bring both financial and political mayhem.
Mr Milei himself will be up for re-election in 2027.
Ominously, since 2009 the party that wins the midterms has lost the subsequent presidential elections.
A suite of structural reforms that boost growth and create jobs is his best chance to buck that trend.
The earlier he can propose such reforms to Congress the better.
There is no time to lose.
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