It was odd to see President Javier Milei’s secretive spin doctor Santiago Caputo in public this week. He made an appearance at the majestic Palacio Bosch – residence of the United States’ ambassador in Argentina – for the early celebration of US Independence Day and the final farewell to Abigail Dressel, charge d’affairs and interim ambassador ahead of the confirmation of Cuban-born Mar-a-Lago millionaire Peter Lamelas. Caputo, the controversial political advisor and member of President Javier Milei’s “iron triangle”(together with sister and Presidential Chief-of-Staff Karina Milei, with whom there seem to be some quarrels), arrived as the Tuesday celebration was under way, immediately attracting the attention of myriad guests, most of whom were seeing him for the first time. “Caputito,” as he’s been dubbed due to his relative young age, initially stood a few metres away from Luis ‘Toto’ Caputo, his second uncle and Milei’s trusted economy minister, and Guillermo Francos, the stone-faced Cabinet chief, yet he never exchanged words with either of them. Instead, he chose to bask in his moment of fame and power as he made his way to the outer garden where a tent had been set up for attendees to enjoy music and drinks.
The Milei administration’s top brass were in perfect attendance at an event traditionally among the most popular on the diplomatic circuit but is also a place where political and ideological positioning is publicly revealed — there were barely any Peronists in attendance on Tuesday, for example. It should come as no surprise, given President Milei’s explicit intention to fully align the country with his US counterpart Donald Trump. After having secured the necessary support for the new deal with the International Monetary Fund (IMF), Milei has doubled down on “carnal relations” with the global superpower, demonstrating his support for Trump’s decision to strike Iran’s Fordo, Natanz and Isfahan nuclear facilities, temporarily suspending his belief in the “principle of non-aggression” that is allegedly so central to his libertarian worldview. The other leg of Milei’s foreign policy is in full alignment with Israel’s Benjamin ‘Bibi’ Netanyahu, who some believe has masterfully roped Trump into a conflict that could have dragged on endlessly if the US hadn’t dropped “bunker busting” bombs from its B-2 Spirit stealth bombers. While Trump has claimed that Iran’s nuclear capabilities have been decimated, taking credit for ending the “12-day war,” some reports suggest the bombings could be no more than a temporary setback, further incentivising the ayatollahs to pursue a nuclear deterrent. In one of his first public appearances since Israel started bombing Tehran and the rest of Iran, Supreme Leader Ali Khamenei claimed victory for himself, suggesting they had given the US a “hard slap” in the face. Spin doctors all around.
Global geopolitical chaos rattles markets and capital generally seeks safety in assets like US Treasuries and gold. While that is traditionally negative for emerging markets and commodity exporters like Argentina, this time around it occurs as Trump is pursuing a global trade war on the one hand and aggressively expansive fiscal policy on the other. The US dollar is falling strongly in part due to the uncertainty created by Trump’s policies and his governing style. Commodity prices have been relatively weak, limiting Argentina’s agro-export sector from generating a windfall which the government can use to accumulate reserves. Energy prices have fallen too, adding risk to the export prospects of the Vaca Muerta shale field that has become one of Argentina’s few hopes to escape the chronic lack of hard currency sparking sudden-stop balance of payments crises. The war has temporarily boosted oil prices, though.
None of this has stopped Milei and Caputo from pushing forth with their economic plan which has used the peso-dollar exchange rate as an anchor for inflation, together with the pursuit of a budget surplus and continued austerity measures. It has worked thus far, but at the expense of an artificially strong peso, making the country expensive in dollar terms. The flip side is that the world is cheap in pesos, sparking an exponential jump in overseas travel and expenditure by Argentines, together with a wave of imports and reduced exports. Several economists have pointed out the risks of this policy mix, suggesting it will eventually create some level of correction in the form of a devaluation which will feed into inflation. The government, starting with the president, has relied on insults and verbal aggression against economists and journalists who raise this issue, calling them “chantas” (i.e. “phonies”) and petty liars. Milei has even coined an acronym: ‘NOLSALP,’ which stands for “no odiamos lo suficiente a los periodistas” (“We don’t hate journalists enough”). Like most populists, blame and hatred is always directed against dissenters.
Recent reports from the INDEC national statistics bureau reveals that Argentina’s economy bounced 5.8 percent in the first quarter of this year compared to the same period in 2024, while broadly measured consumption grew 11.6 percent. While those are solid numbers, they should be compared to the early months of the Milei administration, where an aggressive devaluation helped engineer a recession in order to try and contain inflation. Wages are beginning to grow above the inflation rate, but a negative balance of payments raises some red flags while inequality remains elevated. The Central Bank’s incapacity to accumulate reserves is beginning to trouble the IMF and the labour market isn’t particularly healthy.
This is the context in which the Milei administration is entering the most crucial part of the electoral season. After its meagre performance in early provincial elections, it surprised everyone by winning the local elections in Buenos Aires City. Presidential Spokesperson Manuel Adorni overtook Peronist candidate Leandro Santoro in the final stretch of the campaign, pushing Mauricio Macri’s PRO party candidate Silvia Lospennato down into third. It was a harsh blow for the former president and his cousin, City Mayor Jorge Macri, who are now resisting being engulfed by libertarian La Libertad Avanza coalition. The next stress test will occur in September, when Buenos Aires Province holds local elections that Governor Axel Kicillof split from the national bout to be held in October. LLA is looking to engineer a victory over a divided Peronist front by absorbing PRO. Macri’s supposed lieutenants in the battleground region, national deputies Cristian Ritondo and Diego Santilli, had been engaged in talks with Karina and her strategist, Sebastián Pareja, even before Macri’s capitulation of sorts. There is speculation though that former members of the Juntos por el Cambio coalition, including parts of the Unión Cívica Radical, and non-Kirchnerite Peronists are trying to seduce the Macris into forming a new, anti-Milei front.
In the political chessboard of Buenos Aires Province, the civil war between jailed ex-president Cristina Fernández de Kirchner and Kicillof, her former protegé, will be central to how it plays out. After the Supreme Court confirmed her guilty sentence in the ‘Vialidad’ public works corruption case, the two-term president and most popular figure within the pan-Peronist space has been barred from running. But she’s been returned to a position of political centrality allowing a more effective dispute of power with Kicillof. Her dream would be to pick son Máximo to lead the ticket in the third electoral sector, where she intended to run, but he faces stiff opposition from local municipal leaders and lacks popularity. The early boost in sentiment as she framed the ruling in terms of political persecution could be beginning to wane.
The world is riddled with risks, from the potential of escalation sparking World War III to a social flare-up in the ‘Conurbano’ ring of municipalities that encircle Buenos Aires City. Milei is confident he will retain momentum, and that his Cabinet will continue to be invited to cocktail parties where they are seen with awe and bewilderment. At some point, maybe even the President himself will show up, together with sister Karina. Enamoured with power as they are, it would be wise to remain sceptical of constant praise, particularly in certain isolated ecosystems.
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