Argentina’s upcoming midterm legislative elections are set to serve as a pivotal moment for President Javier Milei’s economic agenda, which has faced mounting scrutiny amid slowing growth and market uncertainty. Since taking office in December 2023, Milei has pursued aggressive fiscal reforms, including slashing public expenditures, halting inflationary monetary policies, and liberalizing the economy. These measures have yielded notable progress: inflation has dropped from a peak of nearly 300 percent year-over-year in March 2024 to a projected 30 percent in 2025. However, the stabilization strategy—centered on managing the exchange rate through valuation bands established with the International Monetary Fund—has introduced trade-offs. By artificially supporting the peso, the policy has made exports less competitive and imports cheaper, distorting key sectors such as manufacturing and construction. Additionally, elevated interest rates, designed to attract capital and prevent currency selloffs, have increased borrowing costs for businesses, further dampening economic expansion. Despite the International Monetary Fund’s projection of 4.5 percent real GDP growth for the year, overall momentum has stalled, and public sentiment has soured. Voters, once primarily concerned with hyperinflation, are now increasingly focused on stagnation and job creation. The government has intervened heavily in foreign exchange markets, selling hundreds of millions in reserves to maintain currency stability, depleting already scarce holdings needed for debt servicing. This has raised alarms among bondholders about Argentina’s ability to meet its growing external obligations. In response, the US Treasury has stepped in with a confidential swap line intended to inject liquidity into the central bank and stabilize financial markets. While this measure has provided temporary relief, its long-term effectiveness hinges on Argentina’s ability to rebuild reserves and adjust its exchange rate framework. Activating the swap to repay creditors would effectively replace private debt with obligations to the US Treasury, introducing new repayment risks unless a sustainable reserve accumulation plan is implemented. The election outcome will be critical: if Milei’s coalition fails to secure at least one-third of congressional seats, opposition forces could block key reforms, increasing economic volatility. Market reactions on October 27 will reflect these dynamics, shaping investor confidence and future credit access. Post-election, the administration has an opportunity to transition toward a more flexible exchange rate regime, accumulate reserves, and advance structural reforms with legislative allies. Doing so could unlock renewed growth and restore macroeconomic stability.
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Milei’s economic plan meets its midterm test
By Ignacio Albe n nArgentina heads into its midterm legislative elections this Sunday with President Javier Milei’s economic program facing one of its most complex political and market challenges since he took office in December 2023. Despite praise for Milei in bringing inflation down, voters are concerned about a stalling economy, and markets are increasingly questioning the country’s current foreign exchange regime. At the same time, the United States has stepped in with a major swap line to provide liquidity to Argentina’s cash-strapped central bank. n nAt stake on Sunday is the government’s objective of securing at least one-third of the seats in both chambers of Congress, which would give the administration the ability to block veto-proof legislation on areas such as spending that could derail its economic plan. Given this complex environment, it’s worth a closer look at the state of Argentina’s economy in the run-up to the vote. n nAssessing Argentina’s recovery n nAs I explained in an article I co-wrote in August, Argentina is emerging from a decade-long period of slow growth, during which the country experienced rampant inflation, capital flight, and a chronic inability to build its foreign exchange reserves. In December 2023, Milei came into office promising to steer the country away from that course. He began by slashing public spending, ending inflationary money creation, liberalizing the economy, and, most importantly for the current context, intervening in the country’s exchange rate. n nThe results were positive: The economy started to recover after an initial decline, investment began to move back in, and inflation fell from an annualized peak of almost 300 percent year-over-year in March 2024 to the current projection of 30 percent for 2025. Nevertheless, Argentina is confronting the side effects of its version of an “exchange rate-based stabilization program” with the resulting drag on growth. n nThese programs, in which a country props up its exchange rate as an anchor to curb inflation through foreign-exchange stability, tend to distort the economy by, for example, making exports more expensive and imports more affordable, harming the competitiveness of key sectors. Interest rates also tend to rise in these programs as governments offer higher returns on domestic-currency financial instruments to prevent selloffs. Argentina, with its valuation bands for the dollar set in April as part of its program with the International Monetary Fund (IMF), has been pursuing a light version of this approach, with direct and indirect mechanisms in place to keep the dollar within a slowly expanding range. Another collateral effect is that borrowing costs for businesses rise dampening growth. This has also been the case in recent months for Argentina, where rising borrowing costs, a deteriorating current account, and sectoral declines in areas such as industry and construction have flattened growth. n nThe economy is still expected to see strong growth this year. Just last week, the IMF estimated a real growth rate of 4.5 percent. But overall, the economy has stagnated, and public sentiment has worsened. Voters may be less concerned with inflation than they were, but they have become increasingly worried about growth. The government, however, has remained committed to its exchange policy, selling hundreds of millions of dollars in recent weeks to keep the value of the peso within the valuation bands. Such a selloff triggered alarms in September, as bondholders fretted over the loss of scarce reserves that the country needs to meet its mounting foreign debt obligations. n nHere is where the exchange rate-based stabilization strategy kicked in, as the government had refused to buy dollars to accumulate reserves in recent months to prevent any pressure on the exchange rate. As a result, the central bank lacked the resources to meet a run on the peso and to reassure markets that dollar-denominated debt remained sustainable, fueling the crisis further. n nThe election, the swap, and the sustainability of public debt n nArgentina has long experienced exchange rate volatility during elections as people seek to shelter their savings from uncertainty. The challenge is that, because the government decided to maintain relative control on the exchange rate into its second year, the country failed to accrue reserves and is now having to absorb the cost of exchange rate volatility with a limited toolkit. Although the US Treasury has now intervened directly by buying pesos to prop up the currency, this has so far failed to calm the market fully. Ultimately, it is likely that only the results of Sunday’s election will put an end to price uncertainty. n nBut another question has come up: Will Argentina be able to meet its upcoming debt obligations? That is where the discussion on the swap agreed with the US Treasury is headed, as the credit line, whose terms are secret, is increasingly discussed by both Argentina and the United States as a liquidity instrument for Argentina’s bond market. The country faces mounting debt repayment obligations in the coming years and, given that its net international reserves are still very limited, the US swap line has served as a mechanism to calm the markets. n nWhether Argentina ends up activating the swap to repay creditors will depend on the government’s ability to rethink its exchange-rate policy and begin accruing reserves. If Argentina activates the swap and uses it to repay debt, then it will essentially exchange debt with creditors for new debt with the US Treasury. This new debt in turn would have its own consequent repayment risks if no reserve accumulation strategy is put in place, just as with the current concerns over the sustainability of debt to private creditors. It will also depend on the future direction of the market after the midterms, which may lead to different outcomes depending on a government victory or loss. If the government fails to secure a one-third minority and the opposition, led by the alliance of Fuerza Patria, wins the national vote, there will likely be more instability. n nThe day after the elections n nOn Monday, October 27, the markets will get their vote as they price in the results. At this point in Argentina, campaigning is over and all that the government can do is wait. In the meantime, while the US Treasury may intervene further in the peso market, the future of the US swap line will be decided in the weeks and months after that by the market’s willingness to provide Argentina with new credit to meet its external financing obligations. n nFollowing the elections, the government will have an opportunity to move into a new phase of its economic plan, freeing the exchange rate and accruing reserves while working with allies in Argentina’s Congress to continue pushing reforms. It should move in this direction to fully free Argentina’s economy and to restart the engine of growth. n nIgnacio Albe is a program assistant focusing on Argentina at the Adrienne Arsht Latin America Center. n nFurther reading n nTue, Sep 30, 2025 n nIs the US currency rescue for Argentina positive statecraft or reckless favoritism? n nNew Atlanticist By Martin Mühleisen n nA twenty-billion-dollar US support package for Argentina announced last week provides crucial breathing room for President Javier Milei. n nWed, Apr 16, 2025 n nFour questions (and expert answers) about Argentina’s new $20 billion financial rescue n nNew Atlanticist By Martin Mühleisen, Jason Marczak n nWhat exactly did the IMF agree to, and what is required of Argentina? Our experts dive into the deal and map what comes next. n nThu, Sep 25, 2025 n nPresidente Javier Milei sobre su visión para el futuro de Argentina en los Atlantic Council Global Citizen Awards 2025 n nTranscript By Atlantic Council n nJavier Milei, presidente de Argentina, ofreció unas palabras al recibir el Atlantic Council Global Citizen Award en la ciudad de Nueva York. n nImage: Protesters hold an Argentina flag seen during the candlelight march in defense of the Garrahan Hospital. Members and patients of Garrahan Hospital marched demanding better wages and improved working conditions. (Roberto Tuero / SOPA Images via Reuters Connect)