Argentine President Javier Milei speaks after learning the results of the legislative elections at a campaign center in La Plata, Buenos Aires, on Sunday. He said his La Libertad Avanza party suffered a “clear defeat” that “must be accepted,” and promised to do everything possible to reverse the results Photo by Juan Ignacio Roncoroni/EPA
Sept. 9 (UPI) — Financial markets dealt Argentina a harsh blow after President Javier Milei’s coalition suffered a major defeat in midterm elections in Buenos Aires province, the country’s largest district.
The market reaction to Milei’s electoral setback was immediate: the peso fell about 5%, the S&P Merval index dropped more than 10% and several ADRs — shares of Argentine companies traded in New York — lost as much as 20% during the day Monday.
The “country risk” — which measures the premium investors demand to hold its debt over U.S. Treasury bonds — jumped above 1,000 basis points for the first time since Oct. 24.
After Monday’s rout, markets saw a technical rebound Tuesday, with the S&P Merval recovering by 2% to 3% and ADRs rising 1% to 6%, while country risk remained elevated at about 1,108 basis points. On the currency front, the dollar gained 10 Argentine pesos, or 0.7% on the day.
The government’s electoral setback at the hands of the opposition — 47% for Peronism versus 34% for the ruling coalition — was read as a rejection of President Javier Milei’s shock program that includes spending cuts, deregulation and market openings, and as a signal the administration will face greater challenges in passing reforms and sustaining its economic plan.
Investment bank Morgan Stanley abruptly reversed its favorable outlook on Argentina after the ruling coalition’s defeat. The firm warned of increased uncertainty around reforms and cautioned about a potential deterioration in Argentine bonds, according to the Argentine outlet Perfil.
Morgan Stanley’s shift on Argentine debt was drastic, as only a week earlier it had recommended taking advantage of lower prices to buy. The firm has dropped that recommendation and withdrawn its favorable outlook on the country.
Milei had framed the Buenos Aires election as a political test ahead of the October legislative vote. He entered the contest after a sharp fiscal adjustment, amid social tensions and controversies that eroded support.
Although inflation has eased compared with 2023, the economy remains fragile and reliant on political credibility to stabilize the exchange rate and restore access to credit.
“Beyond this electoral result, I want to tell all Argentines that the course for which we were elected in 2023 will not change, it will be reinforced. We will continue to defend fiscal balance tooth and nail,” Milei said in his speech after conceding the electoral defeat.
“We will maintain a tight monetary policy. We will sustain the exchange-rate system committed to Argentines. We will redouble our efforts on deregulation.”
He added, “We will not retreat a single inch on government policy. The course is not only confirmed — we will accelerate and deepen it further.”
Although Milei has managed to reduce Argentina’s triple-digit inflation in recent months and ended the excessive spending of his Peronist predecessors, Argentines have yet to see the economic recovery that was expected to follow his harsh austerity measures.
His government has dismantled Argentina’s complex currency controls as part of a $20 billion bailout from the International Monetary Fund, analysts say, but it is still seeking the confidence of international investors who could provide the capital needed to create jobs and spur economic growth.