Argentina at Year Two: The Milei Stabilization After the IMF Pivot and the 2025 Midterm

From shock therapy to a credible fiscal anchor #

The defining variable of the Milei stabilization is the primary fiscal balance. The 2023 outturn under the Fernandez administration recorded a primary deficit of roughly 3.0 percent of GDP and a financial deficit close to 4.6 percent, financed through monetary issuance and BCRA remunerated liabilities. The 2024 closure, certified by the Ministerio de Economia and validated in the IMF First Review of the EFF, 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 calendar year since 2010, and the swing from 2023 is roughly 4.8 percentage points of GDP.

Roughly 55 percent of the 2024 consolidation came from the expenditure side: de-indexation of pensions in H1 2024, the freeze of capital spending, the elimination of energy and transport subsidies through tariff resets, and the suspension of discretionary transfers to provinces. The remaining 45 percent came from the PAIS tax extension, the Bienes Personales moratorium under Ley Bases, and inflation linked tax drag. The 2025 outturn delivered a primary surplus of 1.6 percent of GDP, marginally below the 1.75 percent target but inside the EFF performance band, with zero monetary financing preserved through the full year. The Caputo, Bausili, and Quirno coordination axis held the line through three IMF reviews, two FX shocks, and the September 2025 Buenos Aires province defeat without reverting to the Argentine default reflex of pension catch up bonuses or fuel subsidy walk backs.

The disinflation: from 25.5 percent monthly to a 2 percent regime #

Headline inflation in December 2023 ran at 25.5 percent month over month, the highest print since the 1991 hyperinflation. INDEC's national CPI registered 3.7 percent in March 2025 and 1.9 percent in September 2025, the first single digit monthly print since 2020 outside a regulated environment. Twelve month inflation peaked at 292 percent in April 2024 and fell to roughly 36 percent by March 2026. Three engines drove the disinflation: the fiscal anchor that removed the monetary impulse, the BCRA crawling peg at 2 percent monthly through most of 2024 stepped down to 1 percent from February 2025, and the price discovery from import liberalization under DNU 70 of 2023 that removed roughly 380 SIRA era restrictions.

The wage and price nexus has reset around the crawl. Joint collective agreement settlements in late 2025 cluster between 1.8 and 2.5 percent monthly, tracking the crawl rather than backward looking inflation, the signature of a credible nominal anchor. Real wages collapsed roughly 16 percent in H1 2024 then recovered, and the INDEC private formal series stood roughly 4 percent above the December 2023 baseline by Q1 2026, though informal real wages remain 6 percent below baseline and pension purchasing power is roughly 18 percent below 2023. Risks concentrate in regulated prices: tariff resets 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 IMF EFF, the cepo lift, and the reserves rebuild #

The April 11, 2025 IMF Executive Board approval of a 20 billion dollar 48 month Extended Fund Facility replaced the failed 2018 Stand By Arrangement that had crystallized the 44 billion dollar legacy stock. The disbursement profile is front loaded: 12 billion dollars on approval, the remainder against quarterly reviews on fiscal, FX, and reserve performance criteria. The package layered 12 billion dollars from the World Bank, 4 billion dollars from the IDB, and 4 billion dollars from CAF, totalling roughly 40 billion dollars in committed multilateral support. The US Treasury swap line agreed under the Trump administration in Q4 2025 added a discrete reserve backstop, and Argentina retired the outstanding tranches of the 2009 PRC yuan swap during 2025.

On April 14, 2025 the BCRA lifted the cepo cambiario for individuals and most corporates, replacing the multi tier exchange regime with a floating band of 1,000 to 1,400 pesos per dollar that adjusts the band edges by 1 percent monthly. The peso depreciated from roughly 1,070 official to 1,180 in the first week, then stabilized inside the band through Q4 2025. Gross BCRA reserves climbed from minus 10 billion dollars at end 2023 to roughly 23 billion dollars by December 2025, driven by the EFF disbursement, multilateral inflows, the export liquidation surge under the temporary withholdings reduction, and the unwinding of corporate FX backlog under the BOPREAL mechanism. The parallel CCL spread settled at roughly 8 percent through Q1 2026, down from 70 percent at end 2023.

The dollarization debate has moved off the immediate policy table. The Milei team's revealed preference is endogenous dollarization through monetary base anchoring, peso scarcity, and free FX competition rather than a Hanke style legal redenomination. Officials have tied formal dollarization to two conditions: full elimination of the LECAP overhang and reserves above 50 billion dollars, both unlikely before mid 2027. The interim regime is a managed convertibility within a band, with the LECAP curve replacing the 2018 era LELIQ stock that had exceeded 30 percent of GDP at end 2023.

The 2025 midterm: La Libertad Avanza wins the mandate #

Argentina elects half the Camara de Diputados and one third of the Senado every two years. La Libertad Avanza entered the October 26, 2025 midterm with 37 House seats and 8 Senate seats, having governed for two years in coalition with PRO under a confidence and supply arrangement. The opposition tried to define the cycle on September 7, 2025, when Peronismo Unido under the Fuerza Patria banner won the Buenos Aires province legislative vote by roughly 14 points in the metropolitan belt, triggering a 12 percent peso intraday decline and a 200 basis point CDS widening that the BCRA absorbed without breaching the band ceiling.

The October 26 result reversed the provincial signal. La Libertad Avanza in formal alliance with PRO carried 41 percent of the national vote, against 32 percent for the Fuerza Patria umbrella and 9 percent for the residual UCR plus Hacemos bloc. CABA went LLA plus PRO by 14 points. The province of Buenos Aires split the federal vote 38 to 36 in favor of Peronismo, a much narrower outcome than the provincial vote and consistent with split ticket behavior. The combined LLA plus PRO caucus moves from 81 to 130 House seats out of 257 and from 18 to 31 Senate seats out of 72, short of absolute majority in both chambers but inside reach of a working majority through the dialoguista UCR bloc and selected provincial deputies.

The second half of the Milei term opens a different policy menu. The labor reform package, the federal tax co participation rewrite, the second wave of state owned enterprise privatizations under Ley Bases II, and the codification of the RIGI investment regime no longer require the May 2024 style ad hoc coalition assembly. Political risk shifts from legislative blockage to coalition management inside the LLA plus PRO bloc, with the 2027 presidential nomination as the binding constraint and Mauricio Macri, Patricia Bullrich, and Karina Milei the three nodes that determine whether the alliance survives the primary calendar.

Sovereign curve, equities, and the Vaca Muerta export ramp #

The dollar bond complex is the cleanest read on program credibility. The GD30, the most liquid restructured sovereign benchmark, traded at a stripped yield of roughly 950 basis points at end 2023 and compressed to 600 basis points by Q1 2026, placing Argentina between the Egypt and Pakistan distressed cluster and the Brazil and Colombia investment grade adjacent cluster. Sovereign 5 year CDS compressed from 1,100 to 700 basis points over the same window. The provincial complex moved with the sovereign: Provincia de Buenos Aires 2037s tightened roughly 280 basis points, and Cordoba and Mendoza outperformed the sovereign by 80 to 120 basis points on stronger subnational fiscal prints.

The equity story tracks the energy complex. YPF posted record EBITDA in 2025 driven by Vaca Muerta unconventional production, which crossed 500,000 barrels per day in Q4 2025, up roughly 25 percent year over year, with crude exports through the Vaca Muerta Sur and Oldelval expanded pipelines at a run rate of 180,000 barrels per day by March 2026. Pampa Energia, Vista Energy, Tecpetrol, and the Pan American Energy private complex are second tier beneficiaries. Mining FDI under the RIGI regime concentrated in lithium projects in Salta, Jujuy, and Catamarca, and copper at Los Azules and El Pachon. The YPF Bonn arbitration, where the Preska ruling assigned roughly 16 billion dollars in damages to the Burford led plaintiffs, remains in the appeal phase before the Second Circuit; the Treasury has segregated YPF from the sovereign restructuring perimeter and the bond market has priced the contingency through a roughly 40 to 60 basis point sovereign add on rather than full pass through.

Implications for sovereign creditors, asset managers, and FX hedgers #

For sovereign creditors holding the GD and AL hard currency curve, the carry has compressed but convexity remains attractive into the 2027 presidential cycle. Marginal price action through 2026 is unlikely to come from further fiscal validation, which is now consensus, and more likely from the sequencing of full cepo lift on capital account, LECAP rollover discipline, and the political signal from the 2027 PASO calendar. Position sizing should respect the YPF Bonn tail and the historical Argentine reflex of pre election fiscal slippage.

For asset managers, the Argentine equity complex remains undervalued relative to the energy and mining cash flow trajectory, with Vaca Muerta the structural story and RIGI the policy lock in. The peso fixed income trade has shifted from the BCRA repo and LELIQ reflex to the LECAP and BONCAP sovereign curve, with duration extension contingent on the disinflation print landing inside the EFF target band of 1.0 to 1.5 percent monthly through H2 2026. For FX hedgers, the floating band has compressed implied volatility on the peso forward curve, but the band itself is the political variable: the Caputo team has signaled the band edges will widen rather than break, yet a Buenos Aires province style shock can still cost 8 to 12 percent in spot if the BCRA chooses not to defend the ceiling.

The strategic conclusion is that Argentina has crossed from stabilization into normalization. The remaining work is institutional: codification of the fiscal rule, central bank charter reform that locks in zero monetary financing, formal investment grade re entry through 2027 or 2028, and the political consolidation that survives the Milei first term. Downside scenarios cluster around a 2027 Peronist return that unwinds the fiscal rule, a YPF Bonn enforcement event that taps sovereign assets, or a global EM risk off that tests the band before reserves cross 35 billion dollars. Base case: the Milei program is the Argentine policy regime through 2027, and the discount rate on Argentine assets should reflect that regime rather than the legacy default cycle.

Sources #

• Banco Central de la Republica Argentina, Reservas Internacionales y Politica Monetaria
• INDEC, Indice de Precios al Consumidor Nacional
• Ministerio de Economia de la Nacion Argentina, Resultado Fiscal del Sector Publico Nacional
• International Monetary Fund, Argentina Extended Fund Facility, April 11, 2025 Press Release
• International Monetary Fund, Argentina Country Page and Article IV Documents
• BCRA, Comunicado sobre Levantamiento del Cepo Cambiario, April 14, 2025
• Camara Nacional Electoral, Resultados Elecciones Legislativas Nacionales 2025
• Reuters Buenos Aires bureau, Argentina coverage
• Clarin, Economia y Politica
• La Nacion, Economia
• Secretaria de Energia, Produccion y Exportaciones de Vaca Muerta
• World Bank, Argentina Country Partnership Framework