Argentina

Fateful election in Argentina: Javier Milei fights for power, reform agenda and political future

This coming Sunday, the world will once again be watching Argentina with interest, and the 45 million Argentinians naturally even more so. The congressional elections will determine the country's fundamental political and economic direction for the next two years, before the next presidential elections take place in 2027. Half of the seats in the National Assembly, the lower house of Congress, and one-third of the seats in the Senate, the upper house, are up for reelection on Sunday. In both chambers, President Javier Milei and his party, La Libertad Avanza, currently hold only 15 and 11 percent of the seats, respectively. The new movement ran for the first time in the 2021 elections and won only a few seats.

Blocking minority as minimum goal

Milei's minimum goal is for his party to achieve a blocking minority of one-third of the seats in the National Assembly on Sunday, in order to prevent his vetoes against the Peronist opposition's political agenda (in particular higher spending and restrictions on emergency decrees) from being overruled by a two-thirds majority in Congress.

The opposition has succeeded in doing this several times in recent weeks, for example with additional spending on universities, children's hospitals, and disability assistance. Milei vehemently opposed these increases because they jeopardized the goal of a balanced budget, which was also agreed upon as part of the IMF loan program. Ultimately, however, Milei was defeated due to the balance of power in Congress, which damaged his image of assertiveness at home and abroad, while at the same time the Peronist opposition was able to score political successes and present itself as the representative of social interests.

Successful economic policy, but home-grown political problems

The defeats in Congress came at a very inopportune moment for Milei, who was already struggling with several major challenges.

The macroeconomic balance after almost two years in office remains impressive. The annual inflation rate currently stands at 32%, down from 211% when he took office in 2023. At 4.5%, the Argentine economy is likely to show the highest growth in Latin America this year and one of the highest growth rates in the world, even though the IMF and OECD have recently revised their growth forecasts slightly downward. The decline in the poverty rate from around 50% when he took office to 32% recently is also impressive, especially in view of the shock therapy that Milei has consistently implemented since 2023 with significant spending cuts and layoffs in the public sector.

Milei's problems are therefore less economic than political and are predominantly home-grown. His clumsy and half-hearted handling of various corruption allegations against his closer circle is damaging Milei's image as a clean-cut fighter against the “caste” – one of his main goals when he was elected president, alongside reducing inflation. In February, Milei caused irritation with an ambiguous post about a cryptocurrency on his X profile, which triggered investigations by regulatory authorities in Argentina and the US. In August, leaked audio recordings led to allegations of bribery in the state healthcare system, from which his sister and key advisor Karina also allegedly benefited. At the beginning of October, José Luis Espert resigned from his political functions, including as the leading candidate for “La Libertad Avanza” in the province of Buenos Aires in the congressional elections and as chairman of the budget committee in the National Assembly. The reason was allegations of a payment received from an Argentine businessman who is accused of involvement in drug deals and has since been extradited to the US. Milei initially backed Espert, but then accepted his resignation. In all three cases, Milei did not cut a good figure, acting too hesitantly and half-heartedly to provide full transparency on the matters.

The main concern of Argentinians is no longer inflation (now only in third place), but corruption, followed by concern about unemployment.

On September 7, voters gave Milei a “lesson” in the elections in the province of Buenos Aires, where around 40% of the total population lives. “La Libertad Avanza” only managed to secure 34% of the votes, while the Peronist “Fuerza Patria” won with 47%.

The next morning, the markets reacted nervously to Milei's defeat, which was unexpected, at least to this extent: stock market prices fell by double digits, country risk rose again above 1,000 basis points, and the exchange rate approached the upper limit against the dollar within the ranges set by the government since April.

Since the provincial election, Milei has not been able to calm the markets in the long term. The central bank had to intervene several times to support the peso. Foreign exchange reserves, which are actually needed in 2026 to repay maturing government bonds, declined dramatically.

Trump pledges support for Milei if he “wins” the election

A meeting between Milei and US President Trump and Treasury Secretary Bessent on the sidelines of the UN General Assembly in New York at the end of September brought temporary relief. The US government promised Argentina to do “whatever is necessary,” with markets puzzling over what this meant in concrete terms in the days that followed, especially during a “shutdown” in the US. After further support purchases of the peso by the central bank, Milei met with Trump a second time on October 14, this time at the White House, after being granted the special honor of staying at Blair House. Trump again assured Milei of US financial support, specifically in the form of a swap of up to USD 20 billion and a credit line of the same amount.

In addition, as Milei had hoped, Trump offered to negotiate a free trade agreement between the US and Argentina, which is a rather unusual gesture for him as a self-professed protectionist advocate of “America First” and tariff wars, but at the same time testifies to his personal appreciation of Milei. Trump sees him as an important ally, particularly on right-wing populist socio-political issues and the international fight against socialism and wokism. Added to this are likely to be the geopolitical and economic interests of the US in expanding its political influence in Latin America in competition with its archrival China, securing sales markets, and gaining access to important raw materials.

With Trump's support, Milei has gained time, at least until Sunday's elections, to avoid further major market turmoil. However, Trump has made his support conditional on Milei “winning” the elections, which has led to differing interpretations as to whether this refers to Sunday's elections or the 2027 presidential elections. It should be clear that, for domestic political reasons, the US government is unlikely to have much interest in providing large-scale support for the Argentine peso if Milei fails to gain sufficient support for his economic policy among the population and thus in Congress on Sunday.

The US's political “blank check” for Milei is also not without controversy in Argentina. Even far beyond the Peronist camp, Trump's unambiguous election recommendation for Milei was criticized as interference in Argentina's internal affairs. However, given the turmoil, particularly the weakness of the peso coupled with a shortage of foreign currency, Milei had little choice but to seek the support of Trump and the world's most important economic nation, especially so close to Sunday's election. In any case, it can be assumed that further, sustainable liberalization of the exchange rate regime will be discussed after the election—indeed, it must be.

In search of majorities for reforms

Milei's minimum goal on Sunday, to achieve a blocking minority of one-third, does not yet allow him to actively shape policy. In order to continue his reform course – in particular important structural reforms in taxation, the labor market, the pension system, and federalism – Milei will still need to organize majorities with other reform forces in Congress after Sunday, as he lacks his own majorities. On a positive note, he has already met with the leader of the conservative PRO party, former President Mauricio Macri, to explore structural cooperation after the elections. This will also include cabinet reshuffles, as several ministers will be moving to Congress (Security Minister Bullrich, Defense Minister Petri). Further cabinet reshuffles cannot be ruled out on this occasion, especially as the government has presented anything but a united front in recent months.

Predictions are difficult, especially when they concern the future. This quote from Mark Twain is particularly true before elections in Argentina. According to current polls, Milei could at least achieve his minimum goal of a blocking minority, albeit with a considerable margin of error and thus uncertainty in the forecasts. However, the surprising elections in the province of Buenos Aires have shown how far forecasts and actual results can diverge.

On Sunday, Argentinians will set the course for the next two years of politics: They have the choice of giving Milei stronger support in Congress for his “plan to make Argentina great again,” for which he has already presented clear ideas in the areas of taxation and the labor market. The last two years have impressively demonstrated that his economic policy concept works in practice, with a reduction in inflation and poverty.

It is to be hoped that Milei, who came into office as an economist rather than a politician, has learned from his political mistakes, will ensure greater transparency in his closer circle in the future, and will seek a broader consensus in Congress, with the provinces, and with society overall for the country's further reform course in order to harness the country's enormous potential. The younger generation in the country, among whom Milei has a clear majority, deserve it. The alternative would be a blockade in Congress over the next two years, with a resurgent Peronism whose policies have already failed in the past and are ultimately responsible for Argentina's decline, which Argentinians voted away in disappointment in 2023.

Sunday's election in Argentina will not only be decisive for Milei, but also for the future of Argentina.