Argentina Year Two: Milei's Fiscal Anchor and the Disinflation Bet

The fiscal anchor: from deficit to a primary surplus #

The defining variable of the Milei administration is the primary fiscal balance. The 2023 outturn under the Fernandez government showed a primary deficit of roughly 3.0 percent of GDP and a financial deficit close to 4.6 percent. The 2024 closure, certified by the Ministry of Economy and the IMF First Review, recorded a primary surplus of 1.8 percent of GDP and a financial surplus of 0.3 percent. This is the first time Argentina posted both a primary and financial surplus in a single year since 2010, and the gap with the 2023 baseline is roughly 4.8 percentage points of GDP, larger than any single-year fiscal adjustment recorded by the IMF in an emerging market democracy outside a banking crisis.

The composition matters. Roughly 55 percent of the consolidation came from the expenditure side, dominated by the freeze of capital spending, the de-indexation of pensions during the first six months of 2024, and the elimination of energy and transport subsidies through tariff resets. The remaining 45 percent came from inflation-linked revenue gains, the PAIS tax extension, and the Bienes Personales moratorium under Ley Bases. The 2025 outturn delivered a primary surplus of 1.6 percent of GDP, marginally below target but inside the IMF EFF performance band. Real public sector wages in 2025 were 18 percent below the December 2023 level, and provincial transfers in real terms remained 22 percent below the 2023 baseline through Q1 2026.

The disinflation: from 25.5 percent monthly to a 2 to 3 percent band #

Headline inflation in December 2023 ran at 25.5 percent month-on-month, the highest single-month print since the 1991 hyperinflation episode. Twelve-month inflation peaked at 292 percent in April 2024 and has fallen monotonically since. INDEC's national CPI registered 2.4 percent in March 2026, with core CPI at 2.2 percent. The disinflation has three drivers: the fiscal anchor that removed the underlying monetary impulse, the BCRA's crawling peg at 2 percent monthly through most of 2024 stepped down to 1 percent monthly from February 2025, and the price discovery from import liberalization under DNU 70/2023 that removed roughly 380 SIRA-era import restrictions.

The wage-price nexus has reset around the crawl. Joint collective agreement settlements in Q1 2026 cluster between 2.0 and 2.8 percent monthly, tracking the BCRA crawl rather than backward-looking inflation, the textbook signature of a credible nominal anchor. Real wages, which collapsed roughly 16 percent in H1 2024, recovered through 2025 and stood 4 percent above the December 2023 level by March 2026 on the INDEC private formal series, though informal real wages remain 6 percent below baseline. Risks concentrate in regulated prices and FX pass-through. Tariffs were front-loaded in 2024, but residual catch-up to close the subsidy gap is roughly 18 percent in real terms, with quarterly increments through 2027 in the EFF understandings.

The cepo, the crawling peg, and the FX regime #

Argentina entered 2024 with a multi-tier FX regime: an official rate, a blue-chip swap rate constructed via CEDEAR and AL30 bond legs, an MEP rate, an informal blue rate, and a series of import-specific surcharges including the PAIS tax. The spread between the official and blue-chip swap exceeded 180 percent at peak in October 2023. By April 2026 the spread compressed to roughly 8 percent, with the BCRA running an official crawl of 1 percent monthly and the blue-chip swap trading inside a narrow corridor managed by direct BCRA intervention via AL35 and AL38 hard-currency bonds.

The cepo, the layered capital and FX control regime, has been removed in sequenced tranches. Stock dividend repatriation for post-2024 retained earnings was freed in Q3 2024. Commercial import payments shifted from a 120-day deferred schedule to a 30-day schedule by Q1 2025 and to spot by Q4 2025. Remaining controls cluster on accumulated dividend repatriation for pre-2024 stocks, on portfolio outflow limits for residents, and on a 30 percent surcharge on travel and card spending abroad. The IMF EFF program conditions full cepo removal on net reserves crossing a 15 billion dollar threshold, which the BCRA expects to clear in Q3 2026. The Mosconi judicial review challenged BCRA Communication A 7948 that formalized the blue-chip swap channel, but the Camara Comercial upheld the regulation in February 2026, removing a tail risk to the FX architecture.

The IMF EFF and the reserve trajectory #

The April 2025 IMF Extended Fund Facility for 20 billion dollars replaced the 2022 Stand-By Arrangement and consolidated outstanding repurchase obligations under a single program. The EFF was disbursed in front-loaded tranches, with 12 billion dollars released in Q2 and Q3 2025, and the balance contingent on quarterly reviews. The program's quantitative performance criteria center on net international reserves, primary fiscal balance, and zero monetary financing of the Treasury, which the BCRA has met in every review since program inception.

Gross reserves stood at 21.3 billion dollars on December 9, 2023, and net reserves were negative roughly 11 billion dollars after subtracting the People's Bank of China swap and other encumbrances. By March 31, 2026, gross reserves stood at 38.4 billion dollars and net reserves at 14.7 billion, with a year-end 2026 net reserve target of 22 billion under the EFF schedule. Roughly 9 billion of the buildup came from IMF disbursements net of repayments, 7 billion from BCRA spot purchases at the official window during the 2024 and 2025 harvests, 4 billion from the 2024 tax amnesty that mobilized residents' offshore dollar holdings, and the balance from RIGI-linked direct investment inflows. The harvest exposure is the structural vulnerability: a single bad soybean year on the scale of 2018 and 2022 would subtract 8 to 12 billion dollars from the goods balance and force a renegotiation of the EFF reserve path.

Vaca Muerta, the lithium triangle, and the RIGI #

The structural offset to harvest exposure is hydrocarbons and lithium. Vaca Muerta crude production reached 480,000 barrels per day in March 2026, up from 290,000 in December 2023, on YPF, Vista, Pampa Energia, Pluspetrol, and Tecpetrol activity centered in Neuquen. The Oldelval expansion to Punta Colorada and the Vaca Muerta Sur trunkline commissioned in late 2025 raised crude evacuation capacity to 700,000 barrels per day, removing the binding takeaway constraint that capped 2022 and 2023 output. The Energy Secretariat's 2030 target of 1.5 million barrels per day implies a tripling from current levels and 30 billion dollars of annual export revenue at 70 dollars per barrel.

The lithium triangle of Salta, Jujuy, and Catamarca produces from brine operations led by Arcadium, Eramet, Ganfeng, POSCO, and Zijin Mining. Argentine lithium carbonate equivalent output reached 95,000 tonnes in 2025, up from 38,000 in 2023, on the ramp of Sal de Vida, Centenario-Ratones, and Cauchari-Olaroz. Industry guidance to the Mining Secretariat targets 250,000 tonnes by 2027, lifting Argentina to roughly 14 percent of global lithium chemicals supply.

The Regimen de Incentivo a las Grandes Inversiones, RIGI, established under Title VII of Ley Bases, Public Law 27.742, anchors the foreign investment pipeline. Approved projects through April 2026 total 28 billion dollars of committed capital, dominated by YPF Argentina LNG, Rio Tinto's Rincon lithium expansion, PAE's Argerich offshore prospect, and the Vaca Muerta Oleoducto Sur. RIGI grants 30-year fiscal stability, a reduced corporate income tax rate of 25 percent, accelerated depreciation, and free disposal of FX from incremental export revenue after a graduated retention schedule, the single most material concession for capital-intensive sponsors.

Politics, Mosconi, and the 2027 cycle #

The October 2025 midterm elections were the first electoral validation of the Milei program. La Libertad Avanza expanded its Chamber of Deputies caucus from 38 to 81 seats, and its Senate caucus from 7 to 19, on a coalition slate with the PRO. The opposition Union por la Patria caucus contracted in both chambers, and provincial-level results favored governors aligned with the LLA-PRO axis on fiscal coordination. The midterm result removed the immediate parliamentary risk to DNU 70/2023, the omnibus deregulation decree issued on December 20, 2023, which had survived two prior congressional ratification cycles.

DNU 70/2023 remains under partial judicial scrutiny. The Mosconi line of cases, named for the original challenge filed by ATE and CTA-A in January 2024, contested 22 of the decree's 366 articles. The Supreme Court ruled in November 2025 that the use of a DNU was constitutionally valid given the declared emergency, but struck down four articles related to labor flexibility, which Congress restored in modified form through Ley Bases. Real wage recovery, the pace of cepo removal, and the 2026 inflation outturn will jointly determine whether the program can survive an electoral year without the historical pattern of pre-vote fiscal slippage. Market-implied probability of program continuity, read off the AL30 spread to GD30 and the December 2027 Rofex peso-dollar curve, has risen from roughly 35 percent at end-2024 to 62 percent by Q1 2026, but remains short of the 75 percent threshold that would suggest the disinflation is fully internalized.

The macro-financial risk concentration #

Risk now concentrates in three areas. First, the dollar-only debt obligation profile. Hard-currency public debt service, including AL35, AL38, GD30, GD35, GD38, GD41, and IMF EFF repurchases, totals 14.2 billion dollars in 2026 and 16.8 billion in 2027. Net of pending IMF disbursements and assuming no market access, the residual financing gap is 6 to 8 billion per year, which the BCRA must source from harvest dollarization, RIGI inflows, and tax revenue from the energy and mining surge. A return to international debt markets at sub-9 percent yields, which the AL30 curve currently implies for Q4 2026, would close the gap with margin to spare.

Second, harvest and commodity price exposure. Soybean futures at the Chicago Board of Trade closed Q1 2026 at roughly 11.20 dollars per bushel against a budget assumption of 10.50. Lithium carbonate equivalent prices stabilized at 14,000 dollars per tonne, against a 2022 peak of 80,000. Crude held the 70 to 80 dollar band. A simultaneous adverse move in soybean and crude on the scale of 2018 would subtract 12 to 15 billion dollars from the trade surplus and trigger an EFF program review. Third, human capital flight reversal. Argentina lost roughly 290,000 net emigrants between 2020 and 2023, concentrated in tradable services and energy engineering. The 2024 and 2025 cycles showed early reversal, with net inflows of approximately 41,000 in 2025 on INDEC's preliminary registry, driven by Vaca Muerta and lithium hiring and by RIGI-linked engineering and project finance demand in Buenos Aires. This is the most leveraged of the soft variables: a sustained reversal would compound the export ramp through human capital depth, while a reversion to outflows in 2027 would signal the program lost its credibility window.

Sources #

• Indice de Precios al Consumidor Nacional, Informe Tecnico, March 2026
• Resultado del Sector Publico Nacional No Financiero, 2024 and 2025 closures
• Informe Monetario Mensual y Reservas Internacionales
• Argentina: Request for an Extended Arrangement Under the Extended Fund Facility, Staff Report and First Review
• Argentina Sovereign Credit Rating Action and Outlook Revision 2025
• Fitch Ratings Argentina Sovereign Review 2026
• Moody's Investors Service Argentina Issuer Outlook 2026
• Argentina Fiscal and FX Coverage 2024 to 2026
• Milei Year Two Coverage and Cepo Sequencing Analysis
• Argentina Reform Tracker and Vaca Muerta Coverage