Milei, in the best of all possible worlds

A year on from his resounding victory in last year’s presidential run-off, President Javier Milei finds himself at the peak of his administration. Everywhere he looks, he sees good news, which he takes as confirmation that he has chosen the right path.

First, there is the economy: October’s inflation rate of 2.7 percent, the lowest monthly figure in three years, is the best news Milei and Economy Minister Luis Caputo could have hoped for as year-end approaches. This is what he was elected for and what he will be accountable for – at least until the midterm elections next year.

On the financial front, typically the Achilles’ heel of Argentine governments, the mood is bullish. The nation’s country risk rating, crucial for debt rollover in the coming years, is at its lowest level since 2019. The gap between the official and parallel exchange rates of the peso against the US dollar is just above 10 percent, its narrowest margin since Milei took office.

This positive outlook is prompting the economic team to seriously consider that the coming months might be a good time to make a splash and lift the capital controls that Argentina reimposed in late 2019. An exuberant Milei gave this week, for the first time, a tentative date for the removal of the infamous ‘cepo’: it would be around March 2025.

Global events are also influencing this potential decision. Donald Trump’s victory in the US serves as a political boost for Milei and his ultra-right, confrontational, and politically incorrect approach to governance. With Trump 2.0 arriving with a reloaded sense of authority and a “L’État, c’est moi” attitude, Milei and his team speculate that he might use his enhanced powers to lend his Argentine ally a hand. After all, if Presidential Spokesperson Manuel Adorni is to be believed, Trump told Milei over the phone this week: “You are my favourite president.”

Milei has turned out to be a leader who amplifies his ideology in speech but shows pragmatism in practice. This is a quality he has developed during his time in office, a good sign that he aims to hold onto power for the long term. It is worth noting that his original plan to replace the “excrement” peso with the US dollar and shut down the Central Bank went nowhere. On the contrary, he is now strengthening the peso to levels that are even becoming inconsistent with the normal functioning of the economy.

Thus, Milei now understands that aligning with Trump is not only about the anti-woke agenda but also about business. Lifting the cepo is a prerequisite for business at the scale needed to fulfil Milei’s pledge to help Trump “make America great again.” However, foreign investors are in fact reducing their participation in Argentina’s economic recovery, both in financial markets and the real economy. 

According to a Bloomberg article (see left of page), the share of foreign holders of Argentina’s 2035 bond fell to 71 percent in the second quarter, down from 81 percent a year earlier, based on INDEC data. Moreover, the share of foreign investors in firm acquisition (M&A) transactions dropped to 49 percent in the first half of 2024, the lowest level since 2020.

The government is right to celebrate each new project that comes under the RIGI investment incentive scheme. This week, San Juan Province announced that the Minas Argentinas mining company will invest US$1 billion to expand a gold project. This marks the fourth project announced under RIGI, following a solar farm by YPF and two lithium projects by South Korean firm Posco and Australian firm Galan Lithium, amounting to a total of US$1.4 billion. The Milei administration will need many more of these investments if it is to truly “Make Argentina Great Again.”

Milei and his government also celebrated the confirmation of the guilty verdict against former president Cristina Fernández de Kirchner by a criminal appeals court. The President has selected the Kircherite leader as his ideal opponent, above even Buenos Aires Province Governor Axel Kicillof, who is closer to his age and less tainted by corruption scandals. Milei needs Fernández de Kirchner neither politically dead nor strong — he wants her alive but weakened. 

The verdict includes a lifetime ban from public office, which will not take effect until it is upheld by the Supreme Court or until Congress passes a “Clean Record” style anti-corruption bill, which is currently under debate. Fernández de Krichner is likely to cry “lawfare,” much like Brazil’s Luiz Inácio Lula da Silva and even Trump did. Both Lula and Trump made their political comebacks some years later, both winning office. Third time lucky?