Chubut Province Governor Ignacio Torres flew to Buenos Aires this week to get something he has wanted for some time: the elimination of export duties for conventional oil production. The Patagonian province he leads is where oil was discovered in Argentina in the early 1900s, but over the last decade, the terrain has been shadowed by the massive development of unconventional production (a.k.a. fracking) at the Vaca Muerta shale formation, which is mostly in Neuquén.
Torres, a member of former president Mauricio Macri’s PRO party, was one of the governors who was hoping to build a national profile that could eventually lead him to run for president in 2027 under an opposition banner. For that, he joined the Provincias Unidas group of governors that sought to become a centrist alternative to Argentina’s Milei vs. Peronism polarisation. They failed: Milei’s candidates won in the province in the October 26 elections and Torres’ slate finished third.
The Torres example is multiplying nationwide. Milei’s new interior minister, the shrewd and accommodating ex-PRO lawmaker Diego Santilli, is touring Argentina’s provinces with the goal of aligning them with the agenda of the federal government, which wants to take advantage of the unexpected honeymoon it is enjoying after winning the midterm elections. Santilli is talking to each governor one-on-one to see what they want in order to vote for the government’s proposals in Congress in the coming weeks, when Milei wants to pass his first budget since taking office and, eventually, labour and tax reform.
In his first two years in office, Milei united rather than divided the opposition. His all-out attack on “the caste” – designed to separate himself from the political establishment – earned him many enemies and virtually no friends. The prospects that his economic programme could collapse further fuelled Milei-bashing from the opposition both to the left and the centre.
But everyone likes a winner. The outcome of the election changed the trajectory of his economic fate, at least in the short term. And the government is blending it with new political tactics with a primary goal of getting things done. Milei needs to show he can align Congress with him: the last bill he passed was mostly the first (and only) bill he won approval for, the ‘Ley de Bases’ mega-reform in June 2024. Since then, he has merely shielded his austerity programme from opposition passing shots, dubbing everybody who dared to defy his “no money” axiom a “fiscal degenerate.”
That needed to end. So far, so good. The export duty tax exception Torres is getting for Chubut is worth around US$350 million. Santilli’s pockets are not full though – last week the minister went to Neuquén, where Vaca Muerta is booming but cash is needed to improve roads and other infrastructure. He poker-faced Governor Rolando Figueroa when he inquired about federal funds for that: “We take now, resources are scarce,” said Santilli.
Yet one by one, at least for a while, the governors will again – as they did in the first honeymoon in early 2024 – cave in to the federal government’s demands. A leading case seems to be a Peronist figure, Catamarca Province Governor Raúl Jalil, who is negotiating the transfer to his region of a mining firm partially owned by the federal government. In exchange for that, Jalil is considering splitting his four deputies away from the main Peronist caucus in the lower house, something that could turn the ruling La Libertad Avanza party into the largest minority in the Chamber of Deputies. Jalil, who won the midterm elections in his province, is pushing for major mining development. The Milei administration will soon be sending to Congress legislation that relaxes environmental protection, especially around glaciers, for mining activities. Jalil supports that, but the Peronist national leadership in Buenos Aires will not.
While this happens, other provinces are enjoying the post-electoral euphoria to replenish their coffers with debt. Buenos Aires City issued US$ 600 million of bonds at a reasonable interest rate of 7.5 percent, something Milei celebrated because it points to the federal government eventually returning to international voluntary debt markets sometime next year to roll over debt and ease pressure on Central Bank reserves.
Planets align only for some time, though. The risk the Milei government faces is relaxing into thinking that this state of grace will last forever. Improving politics is a positive step, if it goes all the way into achieving results in the coming months. In economics, the president has just said he does not need to accumulate reserves if that means fuelling inflation. He seems willing (again) to prove everybody wrong. After the honeymoon, real life begins.
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