Javier Milei’s Midterm Triumph Sets Stage for Argentina’s Continued Reforms

Argentine President Javier Milei’s party cruised to a decisive victory in the Oct. 26 midterm elections, but what comes next will likely play a role during Milei’s reelection bid in two years.

Following a considerable amount of uncertainty heading into the legislative contest—a crushing defeat in September’s Buenos Aires election, market upheaval, and U.S. intervention—Milei and his La Libertad Avanza have boosted their seat count in both chambers, winning 41 percent of the vote.

Now that Milei has staved off legislative roadblocks from the left-leaning opposition, also known as the Peronists, what remains for his government?

Experts say the next steps will likely involve building on the structural reforms of the past two years—from pensions and labor to tax and deregulation—and making changes to the Argentine peso.

Libertarian Change in Argentina

When Milei ascended to the presidency in December 2023, he introduced his brand of “chainsaw” economics and implemented a “shock therapy” reform agenda.

Grappling with sky-high inflation, budget deficits, and a stagnating economy, the president followed through on an austerity package. Today, Argentina is experiencing far lower inflation rates, balanced budgets, and robust economic growth.

The annual inflation rate topped 200 percent in the month that Milei became president. It dropped to a seven-year low of 32 percent in September. The monthly inflation rate had reached almost 26 percent, but it has stabilized over the past year, hovering at about 2 percent.

Milei has said that he can build on this success.

“I am the king of a lost world,” Milei told his supporters after the election results. “Today, we have passed the turning point. Today, we begin the construction of a great Argentina.”

La Libertad Avanza now controls 101 seats in the Chamber of Deputies and 20 in the Senate. Despite this edge, Kezia McKeague, managing director for Latin America at McLarty Associates, said Milei needs to forge alliances if he wishes to advance the more-challenging reforms.

“He needs to, in some ways, trade confrontation for deal-making,” McKeague said during an Atlantic Council event on Oct. 28.

“Yes, there is incredible momentum here after the resounding victory on Sunday. But … there’s still no outright majority.”

In addition to passing the 2026 budget, the government has aimed to press ahead with fiscal, labor, and pension reforms.

In September, Milei unveiled his government’s draft 2026 budget—a pre-midterm elections pitch to voters. Despite greater spending for education, health care, and pensions, the president reaffirmed fiscal balance, with a primary surplus.

“That will be a challenge,” McKeague said. “Over the next two years, the hope is to make progress on that structural reform agenda there.”

While his libertarian party is the largest single bloc, Milei has aligned with the center-right Republican Proposal party and the centrist Radical Civic Union to craft a veto-proof minority or working majority. At the same time, Milei will still need to fend off the Peronist-Kirchnerista coalition made up of the Homeland Force, United Provinces, and Workers’ Left Front–Unity.

Although the markets, the International Monetary Fund, and the United States wish to see Milei improve governance and relations with governors, they do not want a return to the pre-Milei era.

“Going back to Peronist policies would cause a rethink,” Treasury Secretary Scott Bessent said earlier this month, referencing the U.S. government’s $20 billion rescue package.

‘Complicated Dance’

During the Oct. 27 session, the Argentine peso strengthened by 10 percent against the U.S. dollar. However, a day later, the peso weakened by about 2 percent against the greenback.

Economic observers have argued that currency management could be one of the biggest obstacles for Milei and his team to overcome.

Shortly after taking office, Milei devalued the peso by 50 percent, bringing it closer to market levels. However, over the past year, Buenos Aires has resisted market pressures and calls from economists to devalue the peso further.

In April, the government introduced a managed exchange rate band to diminish volatility—a public policy mechanism that allows the currency to trade within a predefined range—keeping the peso artificially strong to curb inflation and lower import costs. Additionally, the central bank sold more than $1 billion in hard U.S. dollars from its reserves in September to supply the foreign exchange market and defend the peso.

External support this year has also been vital.

The International Monetary Fund approved a $20 billion plan earlier this year. The U.S. Treasury Department authorized a $40 billion package—$20 billion in a central bank currency swap line and a possible $20 billion loan facility. Both actions permitted Argentina to buy pesos and defend its exchange rate peg.

However, experts argue that the only solution for Argentina is to permit a free-floating exchange, meaning that the peso’s value would be determined by market forces.

Argentina has been reluctant to do so because any decline in confidence could trigger a revival of inflation.

The ideal would be for Milei to approve some flexibility over the next two years, according to Martin Mühleisen, nonresident senior fellow at the Atlantic Council’s GeoEconomics Center.

“But in order for inflation not to pick up again, they still need to run a really tight fiscal ship, and they need to, of course, encourage growth so as to minimize the downside,” Mühleisen said at the Atlantic Council event.

The U.S.-Argentina swap line was a crucial factor for limiting volatility, he said, and the International Monetary Fund could further encourage moving to a float as soon as possible.

Another challenge, however, is to rebuild reserves to repay foreign debt.

“It’s a complicated dance, but I really hope that they will take and get the courage to let it flow more widely and pursue the reforms that are necessary to back that up,” Mühleisen said.

Long Road Ahead

In politics, two years can be a lifetime. For now, investors are cheering the election outcome.

The S&P Merval Index—Argentina’s flagship stock market index—soared by 20 percent one day after the election. It also rallied by more than 6 percent on Oct. 28. International bond prices also surged.

And there could be more room for gains, according to Alejo Czerwonko, managing director at UBS Global Wealth Management.

“We think this Argentina catch-up trade has further room to run, in particular if we see a Milei with a more conciliatory tone, more consensus building, and that leverages this momentum to implement much-needed reforms,” he said at the Atlantic Council event.

Joseph Lord, Kimberly Hayek, and Reuters contributed to this report.