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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is director at the Georgetown Americas Institute and a non-resident senior fellow at the Peterson Institute for International Economics
In September 2018, President Mauricio Macri received the Global Citizen Award in New York and then hurriedly met Christine Lagarde afterwards to secure an even larger prize: an expanded IMF support package for Argentina. The fund increased its commitment from $50bn to $57bn against a turbulent economic backdrop. Fast forward to something of a “groundhog week”: President Javier Milei is in New York being honoured with the same award and finalising a substantial financial package negotiated with the US.
Macri was elected in 2015 and led a government that unsuccessfully tried to integrate Argentina into the global economy and eliminate the deep-rooted economic imbalances inherited from previous, irresponsible administrations. The attempt ended in disarray after the sweeping victory of the Fernández-Kirchner ticket in the 2019 primaries triggered sharp asset price collapses and anticipated their disastrous return to power. By the end of their four-year term, Argentina was in the middle of a recession and experiencing the start of hyperinflation.
In another swing of the pendulum, Argentina elected Milei, a self-proclaimed libertarian (and fiscal conservative), in 2023. Yet the country now faces a financial crisis rooted in the contradictions of his policies and the perception that the populist model is far from exorcised. Political uncertainty continues to cast a shadow over stabilisation efforts: if the pendulum swings back that would risk a return to large-scale government spending financed by the central bank, to soaring inflation, capital controls and debt defaults.
After Milei’s political party made a disastrous showing in this month’s local elections, investors decided that waiting until October’s national legislative elections wasn’t worth the risk: the exodus from Argentine assets began. Markets are spooked by an overvalued exchange rate; an opaque monetary policy; dwindling international reserves; looming foreign currency debt service in the next three years; and the rising possibility that Axel Kicillof, currently governor of Buenos Aires province and Cristina Fernández de Kirchner’s key economic adviser, could become president in 2027.
Milei’s efforts to correct fiscal imbalances and deregulate the economy have surpassed expectations and deserve international support. Such backing should be contingent, however, on policy and political reforms. The strong financial assistance from the Trump administration must be complemented by a renewed IMF programme and a strategy to ensure Argentina can meet its external debt obligations — both private and official. This would bolster market confidence and enhance overall financial stability.
Although Argentina’s fiscal commitments have been exemplary, the exchange rate and monetary policy frameworks have been erratic, stoking uncertainty. A traditional, money-based disinflation strategy, a floating exchange rate and a transparent reserve accumulation rule are necessary. Moreover, Argentina should immediately float its currency. Investing significant resources in defending the current exchange rate band before the election will weaken financial resilience and hinder the transition to a future float. So it is crucial to do it during a period of financial strength, immediately after announcing the support package.
Milei’s political challenge is as significant as his economic one. Recent local elections suggest Peronism remains a force to be reckoned with. Even if he secures a win in October, his party is unlikely to become the dominant one. His popularity has dwindled and he will remain vulnerable, especially with a sluggish economy and limited congressional support. To govern effectively from here, Milei will need to evolve from the outsider, rock star persona who shocked the political world into a pragmatic coalition builder who can broaden his base into a cohesive centre-right movement.
The new financial support package should include conditions that promote such coalition building, linking disbursements to the congressional approval of a multiyear budget, to tax reform and the autonomy of the central bank as well as the policies outlined here. This would send a strong signal that Argentina’s commitment to fiscal responsibility, market principles, the rule of law and transparent financial policies transcends any leader and enjoys widespread political backing. Absent such measures, Milei risks becoming a peculiar case study — an eccentric anarcho-capitalist former president, the outsider whose bold attempts to exorcise Argentina’s economic demons ultimately ended in failure.
