Why Argentina’s Comeback Has Stalled
Milei’s best strategy to rescue the cause would be to dump the peso and dollarize.
By Mary Anastasia O’Grady
An Argentine appeals court last month upheld a decision ordering the forfeiture of hundreds of millions of dollars in assets held by former President Cristina Kirchner (2007-15) and members of her family.
It’s a notable decision considering the power once held by Mrs. Kirchner and her late husband, Néstor, who was president from 2003-07.
Opponents of kirchnerismo are celebrating.
But does it mean Argentina is on the way to becoming a normal country?
Not quite.
The credibility of Argentina’s institutions has been greatly eroded in the past century.
Earning it back could take generations.
Nowhere is this more clearly demonstrated than in the persistent double-digit inflation that is undermining President Javier Milei’s reformist agenda and feeding political uncertainty.
Mrs. Kirchner is serving a six-year sentence under house arrest for fraud in the administration of public-works contracts in the province of Santa Cruz.
Though banned from public office, she still heads the largest faction of the Peronist party from inside her Buenos Aires apartment.
The Kirchner asset forfeiture feels like justice finally being served.
But she can appeal, and the country’s judiciary is notoriously political.
When the Kirchners were popular, their shady dealings went uncontested.
Now the public mood has shifted.
With evidence piled high in the press of the family’s illicit enrichment and the nation suffering the fallout from her brand of “caviar” socialism, the financial penalty is an easy call.
The court’s ruling says very little about the reliability of a judiciary with a long tradition of allowing the state to abuse its power.
The central bank carries similar baggage.
The country’s monetary history weighs heavily on the present, regardless of Mr. Milei’s best intentions.
As economist Nicolás Cachanosky noted recently on his Substack, Economic Order, attempts at Argentine stabilization aren’t new.
They’ve been tried “under military governments and democratic ones, under heterodox programs and orthodox ones, under economists who believed in markets and politicians who did not.
Each episode produced a period of relative calm.
Each period eventually ended the same way.”
There’s something to learn here and Mr. Cachanosky starts by asking: “What if the obstacle is not the policy, but the institutional environment in which any policy must operate?”
That would explain peso instability.
“A country where formal rules are routinely bent to accommodate political necessity cannot manufacture monetary credibility through institutional design alone,” Mr. Cachanosky argues.
“The credibility of any peso-based regime is ultimately only as strong as Argentina’s political institutions, and the country’s reality offers little comfort on that front.”
This isn’t to diminish Mr. Milei’s accomplishments.
In December 2023, he inherited a country teetering on crisis.
He slashed spending and in 2025 the economy grew 4.4%.
The federal government says it now runs a primary fiscal surplus.
Tax and labor reforms and a deregulation blitz have gone a long way to liberate entrepreneurs.
Mr. Milei ended rent control, immediately boosting the supply of housing in Buenos Aires.
The country is in the midst of an unprecedented oil and gas and mining boom.
Argentina has become a net exporter of petroleum.
Last week Fitch Ratings upgraded its foreign and local-currency debt to B-minus from CCC-plus.
Still, inflation is expected to finish the year around 30%.
The economy is expected to grow 3.5% this year, mediocre for a developing economy.
While agriculture and resource extraction are strong, retail and manufacturing have been sluggish.
Those who have been left out are losing patience.
Argentina’s country risk premium is more than 500 basis points, while Brazil’s is well under 200.
When the government auctioned a bond in March maturing in 2028, after Mr. Milei’s term ends, investors demanded almost 350 basis points more than a comparable bond maturing before his term ends one year earlier.
Mr. Milei may be re-elected.
But if he isn’t, the market knows it will mean the return of the Peronists.
Creditors want to be compensated for that risk.
Francisco Monaldi, an energy analyst at the Baker Institute, reported last year that natural-gas exporters in Argentina have been “shifting” toward a “floating liquefied natural gas” model that has higher unit production costs but will allow them to move their investment elsewhere if conditions in the country change.
More hedging against the possible return of the left.
But as Mr. Cachanosky observes, “inflation rose for the last nine consecutive months” and disinflation “faces a structural ceiling that monetary policy alone cannot raise.”
The problem is that there is no “genuine demand” to hold pesos.
They’re largely used to capture the premium interest-rate spread over the dollar.
This “carry trade” spells vulnerability because it creates the expectation that the central bank will eventually need to print pesos to pay creditors.
It’s a bad habit Argentina can’t shake.
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