Synthesis
The country, previously in default, revived investor hopes with the election of a controversial libertarian president, Javier Milei. However, his ambitious fiscal program has run into familiar obstacles, including political turmoil and corruption scandals, which have quickly eroded investor confidence and once again hampered economic activity.
Increased volatility emerged following the heavy defeat of Milei’s coalition in the Buenos Aires regional elections, reviving fears of a resurgence of the Peronist movement in the lead-up to the crucial legislative elections of October 26.
Foreign exchange reserves remain a source of concern due to their increasing depletion to maintain an overvaluation of the Argentine peso (ARS) within a predetermined band. Unexpected support has come from the United States, however, with the announcement of a program including a USD 20 billion swap line intended to stabilize the exchange rate, but confirmation and further details are needed to reassure markets.
Even if Milei achieves a favorable result in the midterm elections, her government will still have to face the challenge of finding an optimal balance of policies in order to control inflation and the exchange rate to consolidate her stabilization program.
Despite the recent correction in sovereign debt, companies have remained broadly resilient, supported by their export activities and strong credit profiles. Future volatility could present emerging market investors with buying opportunities in corporate bonds.
Argentina’s economic slowdown: from global prosperity to unprecedented decline
“There are four kinds of countries: developed, underdeveloped, Japan, and Argentina.” This remark, often attributed to Nobel laureate economist Simon Kuznets, aptly illustrates the unique trajectory of Argentina, a country that was once among the richest in the world but subsequently became an example of economic decline. At the beginning of the 20th century, Argentina boasted a GDP per capita comparable to that of Europe and the United States.
However, by the mid-20th century, this golden age began to fade. Political instability, marked by successive military coups and authoritarian regimes, combined with populist policies consolidated by the Peronist regime, led to an era of protectionism, excessive state intervention, fiscal mismanagement, and hyperinflation. By the dawn of the 21st century, the country had suffered multiple defaults, including the catastrophic crisis of 2001 (the largest sovereign default in history at the time).
Milei and the economy: Argentina’s radical shift towards budgetary austerity
Market expectations for Argentina have shifted since the election of Javier Milei, an eccentric economist and media personality, who defeated the Peronist candidate in the last presidential election, winning in the second round thanks to anti-progressive rhetoric and a radical libertarian agenda. Milei took office in December 2023, brandishing a chainsaw at campaign rallies to symbolize his intention to drastically reduce
public spending. His unconventional style, combined with the difficulties encountered by Mauricio Macri during his term, has raised questions about his ability to implement the promised austerity measures.
Nearly two years into his term, the president has been active, issuing executive decrees and pushing through structural reforms. His measures have generated short-term social hardship in exchange for long-term economic stabilization, prompting a positive reaction from financial markets and positioning Argentina as a candidate for fiscal recovery. In 2024, Argentina recorded its first budget surplus in 14 years, and in July 2025, it received an upgrade of its credit rating from Moody’s, the first in over a decade.
One of Milei’s major achievements was bringing inflation under control. This was accomplished largely by ending monetary expansion as a financing tool and halting the excessive money printing by the central bank (BCRA), which had fueled hyperinflation. When he came to power, monthly inflation hovered around 25 percent; by May 2025, the consumer price index had risen by only 1.5 percent, its lowest level in five years. Annual inflation, which had peaked at 211.4 percent in 2023, fell to 33.6 percent by August 2025. This cooling, achieved without widespread social unrest or mass strikes, helped restore some confidence in the peso.
As a result, Argentina removed strict exchange controls by introducing a floating exchange rate regime for the Argentine peso (ARS). The Central Bank (BCRA) established a fluctuation band, intervening in the foreign exchange market when the spot rate approached the floor or ceiling. International reserves were bolstered by a $20 billion commitment from the IMF, which also provided increased credibility through the adoption of a fiscal discipline program. However, concerns intensified as reserve usage increased to keep the exchange rate at the ceiling, concerns only temporarily alleviated by the announcement of US support from Scott Bessent and Donald Trump on September 22, which could include a $20 billion swap line. Volatility resumed in the absence of confirmation or further details on this program, offering ARS holders a window to sell the overvalued currency. Meetings between senior government officials during the week of October 6, followed by a meeting between the two presidents on October 14, are expected to be important catalysts for short-term market activity.
Economic growth also rebounded after an initial contraction, with GDP expanding in 2024 and by approximately 6.0% in the first half of 2025. The recently presented 2026 budget forecasts continued solid growth while maintaining low inflation. Official projections remain more optimistic than market consensus, as economic activity slowed in the second quarter of 2025—due to political turmoil and monetary tightening.
—, signaling a slowdown compared to the previous quarter and the possibility of a weaker third quarter.
Most of Milei’s measures have been implemented through presidential decrees, many of which have faced opposition from the judiciary and legislature. With at least a third of the seats in Congress, Milei would be able to maintain her decrees and veto parliamentary budget initiatives. Going forward, her ability to negotiate ad hoc alliances will be crucial, as the backlog of structural reforms requires strong legislative support to produce lasting effects, particularly in the sensitive areas of labor, taxation, and pensions.
Argentina’s fiscal reform: still a difficult road ahead
The success of Milei’s economic plan hinges largely on the outcome of the October 26 parliamentary elections, in which nearly half the seats in the Chamber of Deputies and a third of the Senate seats will be up for grabs. If her coalition secures at least a third of the lower house, Milei should be able to enforce her vetoes and decrees. However, to advance unpopular but crucial long-term reforms, particularly in the areas of pensions and social welfare, broader support will be needed.
Concerns about the legislative elections have increased following the September 7 elections in Buenos Aires province. Amid a corruption scandal involving Milei’s sister, the president’s allies suffered a crushing defeat, with the center-left coalition winning 47% of the vote compared to 34% for Milei’s camp. These results were partly influenced by low voter turnout (63%), as some voters abstained in protest against a government that had promised to fight corruption, while left-wing candidates successfully mobilized their base. In 2023, Milei enjoyed significant support from young voters, who will remain a key demographic in the legislative elections.
Milei’s popularity has plummeted after a corruption scandal
Presidential election results and electorate profile
Since then, Milei has adopted a more conciliatory tone and accepted the defeat of his allies, contrary to his initial inclination to discredit the unfavorable results. He presented the 2026 budget with provisions aimed at strengthening governability, taking into account both the short term and the presidential election of October 2027. The governor of Buenos Aires, Axel Kicillof, emerged as a key center-left candidate after his party’s strong performance in the province.
The negative market reaction underscores fears of another setback for Milei. However, several factors, such as higher voter turnout, a more right-leaning electorate outside Buenos Aires, and recent efforts to engage centrist politicians, offer a more constructive outlook. Significant risks remain, particularly if Milei’s popularity were to decline further due to social unrest or new corruption scandals involving her allies. While disenchantment may not necessarily divert her voters to her rivals, it could contribute to another low turnout among a demographic known for being highly sensitive and reactive.
Investment Opportunities
Recent volatility has pushed sovereign spreads to new highs, reaching approximately 1,300 basis points (+540 basis points) in mid-September. While sovereign bonds remain more volatile due to the political environment, corporate credit has held up better. The corporate bond index has widened by around 70 basis points to a peak of 497 basis points and currently offers an attractive yield of 8.5%. We believe this volatility may present opportunities in solid issuers with a defensive profile against the main risks facing Argentina, including:
• Exporters of natural resources . Argentina is one of the world’s leading producers of agricultural products, such as soybeans and corn. Furthermore, oil and gas producers have benefited from increased production and improved cost efficiency in the Vaca Muerta fields, providing an additional source of foreign exchange earnings.
• Local companies with strong credit profiles. Despite their exposure to the domestic economy, some companies are well-positioned to withstand Argentine volatility. These companies hold leading positions in their markets and have historically delivered strong results while maintaining healthy balance sheets.
Argentine corporate bond spreads compare to 262 basis points for the Latin American corporate benchmark and 360 basis points for the global emerging markets high-yield corporate bond index. While the asset class as a whole may benefit from positive catalysts, the strong fundamentals of some companies limit downside risk while offering attractive carry relative to their risk-weighted profile.
Sovereign volatility
Corporate loans are holding up better than sovereign debt.
Conclusion: Outlook for the coming weeks
As one of the world’s most frequent sovereign defaulters, Argentina faces a difficult and demanding path to fiscal stability and restoring investor confidence. If Milei successfully overcomes the upcoming political and fiscal hurdles, his program could solidify Argentina’s economic stability. The October legislative elections will be a key test, closely watched by the markets.
While the prospects for improvement in the fiscal environment are positive and constitute an important catalyst for corporate performance, some companies with strong credit profiles also present limited risk in the event of adverse election results for the market.
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The information provided reflects the opinion of IVO Capital Partners as of the date of this publication. The information contained herein is not intended to be understood or construed as financial advice. It is shared for informational purposes only, does not constitute advertising, and should not be construed as a solicitation, offer, invitation, or inducement to buy or sell securities or related financial instruments in any jurisdiction. CONFIDENTIALITY NOTICE: The information contained herein is strictly confidential and may not be reproduced, redistributed, disclosed, or transmitted to any other person, directly or indirectly. It is prohibited to copy, reproduce, distribute, publish, display, modify, create derivative works from, transmit, or exploit this content in any way, distribute any part of it over any network, including a local area network, sell it or offer it for sale, or use it to create a database of any kind.
