Argentina: what is at stake for the country’s economy with this Sunday’s election

Legislative elections in Argentina will be this Sunday (26) The legislative elections in Argentina, scheduled for this Sunday (26), are decisive for the direction of the country’s economy. Amid the devaluation of the peso and the scarcity of dollar reserves, the government seeks to expand its base in Congress, while awaiting the execution of a billion-dollar financial aid package from the United States — support that was conditioned on the electoral success of Javier Milei’s party. 📱Download the g1 app to see news in real time and for free Last week, after announcing a US$20 billion currency swap line for Argentina, US President Donald Trump received Milei at the White House and stated that Washington’s financial support is conditional on the performance of the Argentine president’s party this Sunday. “If he loses, we will not be generous with Argentina. Our agreements are subject to whoever wins the election,” declared Trump. 🔎 Currency swap is a temporary exchange of currencies between countries, used to reinforce international reserves and provide greater stability to the local economy. It is a way of obtaining liquidity in foreign currency without resorting to traditional loans. After a specified period, each country returns the currency received, with interest or exchange rate adjustments. In practice, the measure helps Argentina, which is facing a shortage of dollar reserves. Despite Trump’s statements, the tone of American policy towards Argentina was softened days later. US Treasury Secretary Scott Bessent announced an intervention in the markets to buy pesos, as part of financial support measures for Buenos Aires. In an interview with journalists, Bessent declared that the US will continue to support Argentina financially as long as Javier Milei’s government maintains “good policies”, regardless of the result of the parliamentary elections. He further stated that the Trump administration is working with banks and investment funds to create a US$20 billion line of credit aimed at investing in Argentina’s sovereign debt. “The Treasury bought pesos in the ‘blue chip swap’ and in the spot market,” Bessent announced on X. According to him, the line will work in parallel with the US$20 billion currency swap. As a result, total US aid to Argentina should reach US$40 billion (around R$217 billion). On Monday (20), the Central Bank of Argentina confirmed the initial aid of US$20 billion, but did not detail when the operation will actually be carried out. Trump welcomes Milei to the White House for the first time Jonathan Ernst/Reuters Political crisis and impact on markets In the last month, Milei has faced a strong political crisis following an alleged corruption scandal involving Karina Milei, secretary general of the Presidency and the president’s sister. An audio recorded by a former ally of Javier Milei, in which Karina is accused of corruption, was leaked to the press and is being investigated by the courts. According to a complaint by Diego Spagnuolo, former head of the National Disability Agency (Andis), Karina Milei and the Undersecretary of Institutional Management, Eduardo “Lule” Menem, charged bribes from pharmaceutical companies for purchasing medicines from the public network. “They are stealing. You can pretend you don’t know, but don’t throw this problem at me, I have all of Karina’s ‘WhatsApps'”, says Spagnuolo in the message. Read more here. In the midst of the crisis, Javier Milei suffered a harsh defeat, in September, in the elections in the province of Buenos Aires — the most important in Argentina, which accounts for almost 40% of the national electorate. The repercussions were felt in the markets: public bonds, company shares and the Argentine peso plummeted the day after the election, in an unfavorable scenario also for the country’s inflation — which affects the image of the Argentine government. Behind the pessimism is investors’ concern that, without political strength, Javier Milei’s administration will not be able to advance its agenda of spending cuts and restructuring of public accounts in Argentina. Now, the expectation is for the market’s reaction after this Sunday’s election. On Friday (24), on the eve of the election, the peso closed at 1,492.45 per dollar — the worst price since the beginning of Milei’s administration. Argentine President Javier Milei delivers a special speech during the 55th annual meeting of the World Economic Forum in Davos, Switzerland, January 23, 2025. Reuters What’s at stake in Congress? Half of Argentina’s Chamber of Deputies (127 seats) and a third of the Senate (24 seats) are up for grabs this Sunday. The Peronist movement currently holds the main opposition force in both houses, and has around half of its seats in the Chamber up for re-election. Milei’s relatively new party, La Libertad Avanza, has just 37 deputies and six senators. The most important disputes will take place in the province of Buenos Aires, where a large number of seats will be at stake. Experts interviewed by the Reuters agency said that, if Milei’s party wins more than 35% of the votes, this will be seen as a positive sign of growth in support, taking as a reference the 30% obtained by Milei in the first round of the 2023 presidential election. If it approaches 40%, it will be considered “a very good election”, said Marcelo Garcia, director for the Americas at risk consultancy Horizon Engage. “If 2025 indicates that Milei is a declining figure, investors will start to prepare for a more center or center-left option in 2027,” said García. In practice, Milei’s party will need around a third of the votes in the Chamber and Senate to prevent future attempts to overturn his vetoes and projects. To ensure this, you will likely need to form alliances. The Argentine president’s party has been getting closer, for example, to the PRO, a centrist party led by former president Mauricio Macri. * With information from the Reuters news agency.

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