Indian Council of World Affairs

Abstract: President Milei’s recent loss in the Provincial Elections of Buenos Aires shows cracks in the government’s economic programmes which are marked by austerity. This has led to multiple challenges for the Presidency and a need to rework cross-ideological alliances, ditch completely austere measures in favour of moderation and build-up for the upcoming midterm polls scheduled later in October. 

Half-way into President Milei’s term, significant challenges that requires manoeuvring have emerged. Recently held Provincial elections in Buenos Aires for 46 seats of the Chamber of Deputies[i] and 23 seats for the Senate[ii], resulted in a comeback of the opposition. The opposition led by the Justicialist Party (PJ) received 46.8 percent of the votes, while President Milei’s La Libertad Avanza (LLA) could muster only 33.8 percent[iii]. 

On further breaking down the results, the PJ won 21 seats in the Chamber of Deputies and 13 in the Senate. In contrast the LLA won 18 in the Chamber of Deputies and 8 in the Senate[iv]. This also resulted in a majority of municipalities of Buenos Aires now under the control of the opposition.  The results are significant considering the upcoming midterm polls as Buenos Aires contributes to 30 percent of the total GDP of the country with 40 percent of eligible voters residing. 

This electoral setback highlights significant challenges for the incumbent President. As the main thrust for his electoral campaign in 2023, President Milei promised economic reforms encompassing reduction in public spending, more investments, reducing inflation and tackling Argentina’s burgeoning external debt in a sharp contrast to Peronism[v] which mainly focussed on a state-oriented welfare economy.  Espousing libertarian ideals, he embarked on ambitious reforms with mixed results.  While reduction in inflation, bridging fiscal deficit and harmonising the exchange rate were some noticeable positive trends, austerity measures have been met with dismay. 

Considering the midterm elections, his low strength in the Congress and resurging Peronist opposition, the path for President Milei seems to become more difficult. It will require political manoeuvring, budgetary concessions to provinces and stepping away from financially strict austere measures to enhance popularity. 

This paper examines President Milei’s reforms, and the challenges ahead.

Economic Reforms 

Embarking on his term in 2023 with a slew of economic reforms, President Milei aimed at arresting inflation, securing a depreciating Peso and maintaining a healthy fiscal balance. Additionally, he sought reducing unnecessary expenditures and privatising economic sectors. 

The first stage was known as the ‘shock therapy[vi]’[vii], the Peso was depreciated to 800 pesos per US Dollar to bring the official exchange rate closer to the market prices and dissuade black market currency exchange. This move, when coupled with tax reforms, sale of non-performing assets, reoriented the nation's economy toward exports. Price control was removed, including rental properties and public utilities.
 
Labour rules were relaxed, and the number of ministers was lowered from 18 to 9. A hiring freeze that extended to federal institutions resulted in the termination of thousands of public employees. Public works were halted, subsidies were eliminated, and welfare expenditure trimmed.

Despite being extremely austere, these actions produced Argentina's first budget surplus[viii] in more than a decade. In December 2023, monthly inflation reached a record 25.5 percent due to the depreciation of the Peso, but dropped to 2.2 percent in January 2025[ix] stimulated by consumption. Although poverty rates initially rose, peaking at an alarming 55 percent in the early months of 2024, they subsequently decreased.

The second stage of President Javier Milei's economic reforms started in June 2024, focussing on financial restructuring and stabilising the value of the Peso, which was prone to fluctuations, thus affecting its purchasing power. The enactment of a comprehensive reform package intending to institutionalize previous measures and implementing new fiscal policies was a crucial part. 

The shifting of interest payment duty from the Central Bank to the Treasury was a major change in monetary policy. Prior to these changes, the Central Bank offered local banks expensive interest rates enticing them to hold onto their funds rather than lend them out. Theoretically, this would have decreased inflation. Ironically, the Central Bank exacerbated the inflation by primarily using newly generated money to support these high interest payments[x]. Now, the Treasury was able to finance the interest payments through borrowing or taxation. As a result, banks were able to raise interest rates above inflation without causing economic instability. 

In the third stage which began in mid-2025 the goal was to make Argentina competitive. President Milei deregulated the country’s currency market in April 2025. Additionally, regulations for paying of imports and exports were made more flexible, and businesses were allowed to move earnings overseas easily. The previous mixed exchange rate policy, which required some Dollars to be exchanged at official rates and some at market rates, was also altered. A single, unified rate has replaced this complicated structure, and the Dollar is now freely traded within a flexible range between Peso 1,000 and Peso 1,400 per USD, depending on supply and demand. 

Argentina also entered into an agreement with the International Monetary Fund (IMF) in April 2025 for a US$ 20 billion loan, and considering its economic situation this agreement is crucial. Also, it managed to secure lending from other non-IMF sources such as Private Capital Markets and the IDB.  In total the Central Bank liquid reserves amount to US$ 39.26 billion[xi] in September 2025. 

Consequences of Reforms 

While these reforms have certainly improved Argentina’s macroeconomic stability, there are socio-economic consequences which have led to disgruntled reactions as highlighted by the results of the Provincial elections. 

Primarily, the severe and sudden austerity measures have led to living standards dropping precipitously. Many social programs have been abolished, healthcare prices have skyrocketed, and pensions have been cut. In February 2025, Argentina's mass consumption decreased 10.2% year over year, for the sixteenth consecutive month. Up to the beginning of 2025, the percentage of people living in poverty rose from 40% to 53%[xii]. Reduced public spending and the termination of more than 30,000 government employees were also poorly received[xiii]. There is a growing concern about increasing unemployment and poverty. These actions have also led to a budgetary dispute between the federal government and Provincial Governors^[xiv].

Additionally, these policies have been furnished in a contentious manner, by bypassing Congressional nod on several occasions[xv]. Austerity measures have seen protests and frequent clashes between law-enforcement agencies and protestors. 

To sum up, the economic policies are a trade-off between prioritising Argentina’s macroeconomic prospects and the state’s role in promoting welfare.

The upcoming Mid-Term elections in October 2025

The results herald further challenges considering the upcoming mid-term polls. The polls will be for 127 seats out of 257 in the Chamber of Deputies and 24 seats out of 72 in the Senate[xvi]. It is important to note that President Milei’s party, the LLA does not have significant strength in both houses of the Congress, and hence these polls will be extremely crucial for him. Before the 2027 presidential elections, a favourable mid-term result may solidify his party's position. 

There are three main challenges. 

First, on the political front and economic, Peronism, an ideology that espouses social welfare and wealth redistribution is deeply ingrained in the Argentine political and social psyche, and is a major ideological challenge. The results will certainly embolden the opposition. Furthermore, while inflation has been arrested to a large extent, affordability is a problem, and it brings little comfort to those who depend a lot on state subsidies, pensions and welfare schemes. Added to it, unemployment which hovers at around 8 percent, drop in real wages, persistent poverty and removal of currency control has made it difficult for many. Hence, while the economic policies have shown some results, the wealth gap between sections of the population has widened giving rise to disappointment and swinging the political pendulum towards the opposition.

Maintaining fiscal discipline and yet adopting welfare measures are diametrically opposite. For instance, the value of the Peso is down by 9 percent in recent times along with dropping sovereign bonds.  Reportedly, the government had to spend more than US $1 billion to rescue the Peso^[xvii]. This has hurt investor confidence casting doubts on the government’s ability to clear external debt and maintain a healthy economic growth. Thus, the government has to meet internal and external economic challenges.

Second, in terms of numbers, while Buenos Aires has traditionally been a stronghold of Peronism, it reflects a larger political backlash. With 40 percent of the total electorate residing in Buenos Aires, the results are of concern to the incumbent president. In the Argentine Congress, the Peronist opposition holds 34 seats in the Senate and 99 in the Chamber of Deputies, while the LLA holds 6 in the Senate and 38 in the Chamber of Deputies. Thus, the disparity in representative strength in the Congress is clearly visible.  In terms of Provincial Governors who play a crucial role in forming policies, the opposition has 7 while the LLA has none.

Third, there has been an erosion of political capital on the part of the LLA. It seems that advantages that President Milei enjoyed being a political outsider and with radical plans for reforms has faded away. Allegations of corruption[xviii] against the establishment has also led to erosion of credibility, especially when his entire campaign targeted corrupt practices. Frequent protests are a sign of disgruntlement.

Keeping these three conditions in mind, it is possible that President Milei will adopt a more balanced approach in economic reforms which may boost the chances of the LLA in the mid-term elections. The Draft Budget for 2026[xix] already highlights a more conciliatory tone in which he promised 4.8 trillion Pesos for national universities[xx], hikes in pensions, education and healthcare[xxi], inflation notwithstanding. Keeping, fiscal discipline as the cornerstone, President Milei’s budget seeks to register a positive growth and economic recovery. Additionally, he reopened the Interior Ministry[xxii] which was previously downsized and ordered convening a federal roundtable to hold discussions with Provincial Governors. 

On the flipside though, the budget requires Congressional approval, subject to debates over economic concessions to provinces and consensus with the numerically strong opposition. Even on previous occasions, the Congress and the Presidency have been at loggerheads over various issues. The Presidency also has to negotiate with Provincial Governors and strike a balance regarding federal fund allocation, a tricky issue that in in the past two years has often surfaced, leading to friction between provinces and the federal government. 

Conclusion

The current administration has adopted economic strategies that has improved Argentina’s macroeconomic condition such as inflation, balance of payment and worked in close tandem with the IMF and securing access to loans. However, the political and social cost of such measures are visible. Peronism, an ideology deeply rooted in Argentine politics has made a resurgence as visible from the election results in Buenos Aires and in this situation, President Milei has adopted a more conciliatory tone striking a balance between fiscal conservatism and welfare economics, discarding solely ideologically motivated measures. The upcoming mid-term elections will be crucial, as not only will it highlight the current political situation but also point out to the prospects of the present government as Argentina goes to Presidential elections in 2027.

*****

*Dr. Arnab Chakrabarty, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: The views expressed are personal.

Endnotes 

[i] Lower House of the Argentine Congress.

[ii] Upper House of the Argentine Congress.

[iii] Gobierno de la Provincia de Buenos Aires (8th September 2025). Resultados de elecciones Provinciales de Buenos Aires). Accessed 18th September 2025. https://resultados.eleccionesbonaerenses.gba.gob.ar/.

[iv] Midhat Fatimah. (9^th September 2025). Argentina: Milei’s Party loses key vote in Buenos Aires. DW Accessed 19^th September 2025. https://www.dw.com/en/argentina-mileis-party-loses-key-vote-in-buenos-aires/a-73913770.

[v] A left-oriented ideology named after former President Juan Domingo Perón, which espouses economic independence, sovereignty, state-oriented economic and developmental goals and improving the conditions of the working class. This is in diametric opposition to President Milei’s libertarianism.

[vi] Also known as the terapia del choque was a drastic change from a state-oriented economy to more free-market one.

[vii] Matt Barlow. (15^th September 2025). Is Milei’s electoral blow the beginning of the end for his radical economic vision? DW Accessed 19^th September 2025. https://theconversation.com/is-mileis-electoral-blow-the-beginning-of-the-end-for-his-radical-economic-vision-265099.

[viii] 1.76 trillion pesos, or 0.3% of gross domestic product (GDP).

[ix] The Economist. (11^TH September 2025). What Javier Milei’s first defeat means for his future. Accessed 19^th September 2025. https://www.economist.com/the-americas/2025/09/11/what-javier-mileis-first-defeat-means-for-his-future.

[x] Lexlink. (5^th September 2025). Argentina: The rollercoaster and the President; 180 days into the Milei administration. Accessed 20^th September 2025. https://lexlink.org/2024/06/argentina-the-rollercoaster-and-the-president-180-days-into-the-milei-administration/

[xi] The composition is as follows: US$15 billion from the IMF, US$6.1 billion from international lending agencies, US$2 billion from international short-term goals and US$ 5 billion from a currency swap with China.

[xii] Facundo Iglesia. ( 10^th September 2025). Milei’s post-election economic challenges: what Argentina’s markets are expecting. Buenos Aires Herald. Accessed 22^nd September 2025. https://buenosairesherald.com/economics/markets/mileis-post-election-economic-challenges-what-argentinas-markets-are-expecting.

[xiii] David R. Henderson. (9^th January 2025). Critics of Milei’s Policies strike out. Hoover Institution. Accessed 19^th September 2025. https://www.hoover.org/research/critics-mileis-policies-strike-out.

[xiv] Friction between the federal and Provincial governments has been ongoing since the past two years. Notably, incidents like the province of La Rioja printing a quasi-currency and the province of Chubut threatening to cut off hydrocarbon supply in retaliation are prominent. However, by the May Pact signed in 2024 allowed measured cooperation, while friction remains visible.

[xv] Nicolas Misculin. (5^th May 2025). In Milei’s Argentina economic miracle, not everyone’s a winner. Reuters. Accessed 21^st September 2025. https://www.reuters.com/world/americas/mileis-argentina-economic-miracle-not-everyones-winner-2025-05-05/.

[xvi] Christopher Martin. (6^th June 2025). Argentina is voting in 2025: Here’s a guide with all you need to know. Buenos Aires Herald. Accessed 20^th September 2025. https://buenosairesherald.com/politics/argentina-is-voting-in-2025-heres-a-guide-with-all-you-need-to-know.

[xvii] Ciara Nugent. ( 20^th September 2025). Argentina spends $1 bn to defend peso as President Javier Milei’s crisis spirals. Financial Times. Accessed 20^th September 2025. https://www.ft.com/content/270d9987-9b42-4ccf-83e8-cb6fe57faab7.

[xviii] Allegations were made that Karina Milei, General Secretary of the Presidency allegedly received bribes for allowing government contracts from pharmaceutical companies.

[xix] BA Times. (16^th September 2025). Argentine assets rebound as Milei strikes more moderate tone. Accessed 19^th September 2025. https://www.batimes.com.ar/news/economy/argentine-assets-rebound-as-milei-strikes-more-moderate-tone.phtml.

[xx] Reuters. (16^th September 2025). Argentina draft 2026 budget spotlights fiscal balance, hikes social allocation. Accessed 21^st September 2025. https://www.reuters.com/world/americas/argentina-draft-2026-budget-spotlights-fiscal-balance-hikes-social-allocations-2025-09-16/.

[xxi] A detailed breakdown- The draft budget while keeping fiscal discipline as its priority, promises to spend 85 percent of all federal spending on education, healthcare and pensions. It targets an annual growth at the rate of 5 percent and lowering inflation to 10 percent per annum.

[xxii] This is an important measure, as the said ministry is instrumental in managing relations between Provincial and federal governments.