Milei’s win should lock in financial backing from Trump. But at what cost to Argentinians?

In late October Argentina’s president, Javier Milei, won a decisive victory in the country’s midterm elections. The scale of the result caught most political commentators off-guard. It now gives the president the legislative capacity to push through his much touted programme of labour and tax reforms.

While voter turnout hit a historic low, those who did vote overwhelmingly supported^[1] Milei’s Liberty Advances party, strengthening his chances of consolidating his radical economic agenda of austerity and free-market capitalism.

Milei’s defeat in local legislative elections in Buenos Aires province only a month earlier had led me to ask whether his economic agenda was at risk of being derailed^[2]. But this time around, in the same province – a traditional stronghold of the opposition Peronist party – Milei’s party took most of the seats.

Even in his historic presidential election victory in 2023, this was a province that Milei had been unable to win. So victory now could be seen as a validation of his wider austerity policies – and a mark of his popularity.

It is a popularity that seemingly transcends borders – all the way to the White House. In the run-up to the election, much was written on US intervention into Argentine politics. US president Donald Trump offered a US$40 billion (£30 billion) bailout while simultaneously warning the country’s electorate that the offer was conditional^[3] on strong voter support for Milei in the midterms^[4].

Immediately after his electoral victory, members of the Trump administration heaped praise on Milei, calling him a patriot and freedom fighter who would make Argentina great again^[5].

Such is the deepening of relations between the US and Argentina that even during the fanfare of President Trump’s east Asia trip, US Treasury Secretary Scott Bessent talked with Milei and posted support^[6] for his political and economic agenda on social media. Meanwhile, Milei thanked the US for its “unwavering” support^[7].

Bessent’s post also alluded to the fact that the market should easily meet the “republic’s financing needs for 2026”. This is a bold statement when the market has long been sceptical about Argentina, even when its governments have pursued market-friendly policies.

Investors reacted enthusiastically to the election result, however, pushing the value of the Argentine peso up by 10% (at one point) against the US dollar on the Monday after the vote.

Uncertainty about future government policies towards the peso, which floats in an exchange rate band^[8] that prevents it from moving beyond upper and lower levels, meant that all the currency gains had been virtually wiped out by the Tuesday^[9].

Yet there remains an optimism in Argentina that Milei’s electoral victory opens up opportunities for debt sales that could provide a pathway for much needed US dollars to make their way into the economy.

Argentinian oil companies YPF and Tecpetrol have sparked an early bond rush^[10] by issuing fresh debt into the markets, while provincial governments are reportedly negotiating with banks to package and sell debt to investors abroad^[11]. All of this signals growing investor confidence and could bolster the value of the peso.

It is of course not all plain sailing. While Milei’s policies have so far tamed inflation – and delivered a surplus for the government finances^[12] – they come with risks and high social costs.

Many Argentinians do not, as yet, feel better off. A fall in purchasing power thanks to things like rising supermarket prices and transport costs has meant that many citizens are not feeling the benefit of the lower overall rate of inflation. Some 250,000 jobs have been lost across public and private sectors and 18,000 business have closed^[13], leading to high unemployment and underemployment. Many people must now borrow money to make it to the end of the month^[14].

Milei has previously employed vetoes to stall funding increases in higher education, disability allowances^[15] and pensions. These are all emotive policy areas and are likely to generate public backlash as well as placing some of the most vulnerable at risk.

The national budget could also come under renewed pressure. Debt repayments including US$3.3 billion to the IMF are due next year^[16] and investment is badly needed into Argentine infrastructure.

Milei has sought investment into extractive industries such as lithium and shale gas and oil as part of his growth strategy. But the infrastructure projects that allow for the transportation of these commodities – and which attract investment – fell under his chainsaw as part of major austerity cuts^[17] in 2024.

Half of the 2,700 public work projects unfinished from former president Alberto Fernández’s administration have seen no progress during Milei’s presidency^[18].