THE ARGENTINE PESO, AND JAVIER MILEI, ARE IN TROUBLE / THE ECONOMIST

Currency chaos

The Argentine peso, and Javier Milei, are in trouble

The president’s economic team has decamped to Washington, trying desperately to confirm American support

Photograph: Shutterstock

On October 6th, in the middle of his most difficult period as president, Javier Milei donned a long leather jacket, strode into a packed arena in Buenos Aires and jumped around like a rock star, belting out Argentine rock classics. 

The idea was to revitalise his party’s campaign for the midterms on October 26th and to remind his supporters, and perhaps himself, that his presidency was once exciting, even fun.

Lately, running Argentina has been quite a slog. 

On September 22nd Scott Bessent, the US Treasury secretary, promised that America is ready to “do what is needed” to steady Argentina’s currency. 

That intervention was prompted by the Argentine central bank being forced to sell over $1bn in two days to prop up the peso. 

Mr Bessent’s promises stopped the slide, but details are scant and even Republicans are questioning the bail-out. 

The situation is again fraught.

With every social-media post by Mr Bessent, the peso and Argentine bonds lurch (see chart). 

By some estimates the Argentine treasury has sold more than $2bn over the past six days to support the currency. 

Mr Milei’s economic team is in Washington, trying to hash out the details of the bail-out and buy some calm. 

Yet even if they can navigate American politics, the Argentine variety may swamp them. 

A serious loss in the midterms would all but end Mr Milei’s radical economic reform programme.

The coming weeks will be tough. Voters consider Mr Milei’s success in pulling down inflation to be old news. 

Corruption allegations and the gyrations of the peso dominate the headlines. 

It is still—just—possible that Mr Milei could emerge after the elections with markets calmed and his political hand strengthened. 

But he needs to make it to October 26th without more exchange-rate chaos, and then win enough seats in Congress to convince markets that his reform project is still alive.

Invecq, an Argentine consultancy, reckons the government may need to spend almost $8bn in advance of the midterms to keep the exchange rate within its permitted band. 

Blowing such an eye-watering sum, especially when it is widely expected that the peso will be allowed to float more freely after the election anyway, would horrify foreign creditors who want dollars to be available for paying them back in the future. 

The government might therefore restrict foreign-exchange trading in the run-up to the vote. 

Mr Milei still hopes that concrete details of the United States’ backing will make this unnecessary. 

Maybe. 

But the markets’ sceptical message to Mr Bessent is now: “Show me the money.”

Then Mr Milei needs to win, or at least take enough seats to allow him to defend his presidential veto. 

But his electoral strategy is in trouble. 

His dogmatism has alienated powerful provincial governors. 

He came to power in 2023 raging against “la casta”, the corrupt political elite. 

“I’m hungry for the whole caste,” he roared again during his concert. 

And yet he has been hit by three big corruption scandals this year.

The first was over his promotion of a dodgy cryptocurrency that soon collapsed in value. 

Then, in August, leaked audio messages led to allegations that his sister was taking kickbacks from purchases of medicine by the state disability agency. 

The latest blow was on October 5th, when José Luis Espert, the leading candidate of Mr Milei’s party in Buenos Aires, whose face is already on the ballot papers, stood down. 

He admitted to receiving $200,000 from a man indicted in the United States for drug-trafficking, but says it was for legitimate consulting work. 

In all three cases those involved deny wrongdoing.

Curbing rampant inflation is the other pillar of Mr Milei’s pitch. 

Fast-rising prices used to be voters’ biggest worry, but unfortunately for him they have moved on, and now corruption tops the list. 

That inflation concerns have ebbed is a testimony to Mr Milei’s success, but he has failed to pivot to other issues. 

An overvalued peso helped to curb price growth, but propping it up has both hurt employment and exacerbated the exchange-rate crisis. 

Now more voters worry about jobs than inflation.

Polling suggests Mr Milei’s party still has a chance. 

But momentum is against it. 

He will need more than rock concerts to turn things around.