Milei, the two Caputos and the two anchors

Come Monday, everything will be different. 

Regardless of what happens tomorrow, Javier Milei will have the opportunity to try and build a sustainable plan for the remaining two years of his Presidency, allowing him to deliver on his initial campaign promise of getting Argentina back on its feet. Mind you, he could find himself mired in an economic and political crisis of an uncontrollable magnitude that will make it a difficult feat for him to reach the end of his mandate. Interestingly, it all seems to depend on the decisions he takes moving forward, regardless of the actual electoral result. This is remarkable because the situation facing the Milei administration as it arrives at tomorrow’s election is disastrous, in great part as a consequence of regular self-inflicted wounds. Despite the amateurism with which Milei and his ragtag crew of libertarians have governed over the past two years, which have included a succession of micro-crises on the economic front, the conditions are in place for the self-proclaimed “anarcho-capitalist” to lead Argentina towards a (more) prosperous future. The real liability isn’t Cristina Fernández de Kirchner and the potential return of Kirchnerism, rather, it’s Milei himself.

Milei arrives at a transcendental election in the worst possible shape. The electoral beatdown suffered in September’s local elections in Buenos Aires Province precipitated a loss of confidence that sparked a dangerous run on the peso. Indeed, the government’s electoral strategists suggested a victory in the historic Peronist bastion that is the “mother of all battles” was not only possible, but probable. Presidential chief-of-staff Karina Milei empowered her political lieutenants, advisor Eduardo ‘Lule’ Menem and his cousin, Lower House Speaker Martín Menem, together with Sebastián Pareja, to determine this year’s political strategy. It resulted in a series of tough defeats, with the exception of Buenos Aires City, that was ultimately exacerbated by the loss in Buenos Aires Province, which also handed Governor Axel Kicillof an easy, and maybe even unexpected, win. Peronism almost went into the election fractured, torn apart by a civil war between Kicillof and the Kirchners, Cristina and son Máximo. That would’ve been fatal for them, but even in the context of a weak truce, local mayors and municipal leaders were excluded from national candidate lists, incentivising them to play all their cards in the local election. This won’t happen this time, so it’s important to put the relative disadvantage for the Fuerza Patria pan-Peronist coalition in context.

The Buenos Aires Province election also marked a turning-point within the ranks of the government, with the diluted and controversial political strategist Santiago Caputo leveraging his internal opponents’ defeat to come out on top. The narrative ‘Caputito’ and his crew have threaded into the public discourse is that his exclusion from the inner circle of campaign strategy led to the defeat and that his return should give the administration some air. This same logic is behind several high-profile changes in the Cabinet, including the exits of former foreign minister Gerardo Werthein and Justice Minister Mariano Cúneo Libarona. While the Milei administration has appeared amateurish from day one, the level of internal treachery and ineptitude had overtaken the economy as the main occupation of the Cabinet and several top-line officials. Yet, in its first year in power, La Libertad Avanza has managed to weave circumstantial alliances that allowed them to pass legislation, a leash that has been completely relinquished at least since this year began.

The economy began to implode in this context of political dysfunction. Milei and Economy Minister Luis ‘Toto’ Caputo came into the electoral season armed with the dual victories of a balanced budget and consistent disinflation. They also relied on an overvalued peso to spark a “wealth effect” or “plan platitia” as it is called domestically that resulted in a totally misbalanced macroeconomy. With deeply negative reserves at the Central Bank’s coffers, Milei, Luis Caputo and BCRA Governor Santiago Bausili devoured any and all sources of dollar-denominated financing they could get their hands on until the supply effectively dried up. This is when Milei’s sucking up to US President Donald Trump actually proved hugely beneficial, allowing the Argentine government to receive an emergency bailout from the United States that included unprecedented direct intervention in Argentina’s foreign exchange markets. This should be Milei and Caputo’s secret weapon, giving them the full backstop of the US Treasury and Federal Reserve to execute a consistent macroeconomic plan without the consistent risk of a sudden devaluation.

If Milei and Caputo have US Treasury Scott Bessent’s full support as the new “anchor” of their economic programme (which they need to restructure), the political wing of the government, supposedly under the control of the younger Caputo, will need to find its own. In other words, they need to “guarantee governability” if they aspire to “Make Argentina Great Again,” as they like to say. Fortunately for them, the path is relatively clear. The historic league of governors has formalised its alliance under the Provincias Unidas banner. Whatever their tally is on Sunday, together with other provincial parties not formally under the coalition, they will be relevant in the successive legislative make-up that settles in Congress. Governors and provincial leaders will have the keys that Milei and Caputito need, together with whatever Mauricio Macri’s PRO, Rodrigo De Loredo’s strain of the Unión Cívica Radical (UCR), and Miguel Ángel Pichetto can muster. The “political anchor” would come in the form of a series of agreements with provincial governors and friendly political forces that would allow the Casa Rosada to pass its 2026 Budget bill and certain pieces of key legislation. Clearly this means negotiations and consensus, as opposed to insulting rhetoric and chainsaw austerity. It also means that Milei will have to cede on his aspirations of total control of state revenue and therefore potentially lower budget surpluses.

Taken all together, Milei and the two Caputos have the path laid out for them. The “two anchors” that will give them a possible future are tied to applying the necessary adaptations to the economic policy plan and creating the conditions for circumstantial legislative majorities. This situation appears possible under any electoral scenario, even a potent Peronist victory. The real question is whether Milei and his crew are willing and able to pull this off. Not that it’s an easy task, particularly in the current Argentine context, where the past three administrations have tried and failed to do so (Alberto Fernández, Mauricio Macri, and Cristina Fernández de Kirchner). Yet, having already consolidated the idea of a balanced budget as a majority position within the Argentine political ecosystem, the potential allies are clear. At the same time, the idea that a series of structural reforms is necessary has also become engrained in the collective political subconscious of the more rational actors within the political class. The relatively recent implosion of the “Kirchnerite miracle” under CFK’s tenure, together with Macri’s bombastic failure and the Fernández-Fernández fiasco have left their mark, and supposedly their lessons. But as mentioned above, the biggest liability is none other than Milei himself.