Argentina’s Milei May Have Put the Nail in the Coffin of Peronism

(Illustration by Andrea Ucini)

About the author: Gregory Makoff is the author of Default: The Landmark Battle over Argentina’s $100 Billion Debt Restructuring. He writes the Substack newsletter** Fool Me Twice.

That Argentine President Javier Milei’s right-wing party, La Libertad Avanza, swept parliamentary elections on Oct. 26 is a blessing to many. For U.S. Treasury Secretary Scott Bessent, it means that a big gamble paid off. For U.S. taxpayers, it means that a $20 billion loan will probably get repaid.

It might be an early death rattle for Argentina’s Peronists, however. The populist, nationalist political bloc, which led the country into decades of economic crises, is officially waning. That will bring relief to investors and the many Argentine citizens who despise the hold the party has long held over the nation’s political and economic life.

Argentina’s history of default is well-known. Practically since it gained independence in 1816, it has been caught in an endless loop of boom, bust, devaluation, default, and inflation. Less appreciated is that Argentina is periodically gripped by an urge to reform its ways.

During the global depression of the 1930s, Argentina’s federal government managed not to default when many others did. In the 1990s, President Carlos Menem successfully lowered inflation and privatized many industries. After defaulting on foreign debt in 2001, the government managed to run fiscal surpluses for six years.

But in each case, the Argentina people reverted to voting for politicians who overspent—and crisis returned. It happened again in 2019, when the reformist government of President Mauricio Macri was replaced with Peronist politicians. Argentina defaulted for a ninth time in mid-2020.

Milei, a former economist, promised to end this cycle. Running for election in 2023, he said: Don’t believe politicians who blame our problems on foreign creditors, adding: We spend too much and print too much money. And then, waving around a chain saw, he said: The solution is to cut government.

Inflation was nearing 200%, and the country was exhausted by financial chaos. For the first time in my memory, the Argentines didn’t vote for a good-looking candidate promising handouts. They voted for a scruffy guy in a leather jacket promising pain now, gain later.

There certainly has been pain. Milei’s austerity plan hasn’t had long to work. He has dramatically cut inflation, but growth and investment are trailing. There isn’t yet light at the end of the tunnel.

So, Milei and his supporters were fearful of this fall’s election. In particular, they were afraid of a repeat of 2019, in which a bad showing of Macri’s party in primary elections cratered financial markets, virtually handing the victory to his Peronist opposition before the actual vote. To eliminate this risk, Milei got Congress to suspend the primary. But Axel Kicillof, the Peronist governor of the very Peronist province of Buenos Aires, had a move of his own: He shifted his province’s provincial elections up to Sept. 7—seven weeks before the national midterms.

Kicillof’s move had its desired effect. In the Buenos Aires election, the leading Peronist party, the Justicialists, won 47% of the popular vote. Milei’s LLA party won just 33%. Markets panicked like it was 2019. The Argentine peso dropped more than 5%, Argentine 2035 sovereign bond yield rose 15%, and the country’s flagship stock index, the Merval, dropped 10%.

Enter grandmaster Bessent. Either Argentina would deplete its foreign reserves, free its currency into a huge devaluation, and the Peronists would win the midterm election, or the U.S. would lend Argentina sufficient currency to head off a shock devaluation. Bessent’s bet—a $20 billion swap line—was risky. Milei might lose, and the U.S. might not get repaid.

But Milei crushed the Peronists in the midterms. It was a reverse of the Buenos Aires vote: Milei’s party won more than 40% of the vote and the Peronists just over 30%.

The Peronists are now at their weakest point in recent history. At their peak after the 2007 elections, they occupied the presidency and held about 60% of the seats in both chambers of Congress. They are now down to less than 40%.

But a grim outcome for the Peronist movement bodes well for investors—and for the U.S. and the International Monetary Fund, each of which has tens of billions of dollars on the line.

For stock, bond, and foreign direct investors, Argentina now presents a wide-open field. The looming problem since 2023 has been the potential that the Peronists would come back and overspend, confiscate private businesses, extend capital controls, and default on debts. As these fears dissipate, asset prices, foreign investment, and gross-domestic-product growth should rise. In turn, the probability that Milei’s reform program will be completed is much higher. A virtuous cycle has been unlocked.

Nobody can say for sure if this is all sustainable. But one optimistic thought is that the Peronist party’s collapse in October could be a failure from which it may never come back. It isn’t dead yet: Too many individuals and organizations are wedded to its beliefs. But, for the first time, we can contemplate its slow relegation to political irrelevancy.

What would cement the case for that would be for Milei to triumph at the ballot box in 2027. Investors in Argentine assets should hope for that.

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