The Argentine Reset: Milei’s Two-Year Experiment and the Politics of Disinflation

On 11 April 2025 the IMF Executive Board approved a forty-eight-month Extended Fund Facility for Argentina worth USD 20 billion, equivalent to 479 percent of quota, with USD 12 billion released on first disbursement. Three days later Economy Minister Luis Caputo dismantled most of the cepo cambiario and installed a managed-float band of 1,000 to 1,400 pesos per dollar, widening 1 percent at each edge per month. The blue dollar, the MEP rate and the official rate converged into a single 1,430 to 1,460 corridor by early 2026. Argentina, the serial defaulter, is two and a half years into the most disciplined adjustment program in its post-Convertibility history, and the experiment is now entering its second political cycle with the macro stabilised, the multilateral lifeline secured, and the social cost visible in the polls.

From 211 Percent to 31.5 Percent. The headline numbers are unambiguous. Argentina ended 2023 at 211 percent annual inflation, a 5 percent of GDP primary deficit, an IMF program in suspension, and a parallel dollar trading above 1,000 ARS while the official rate sat below 400. By the end of 2025 annual inflation had fallen to 31.5 percent, the lowest print since 2017 and roughly 86 percentage points below the 117.8 percent recorded in 2024. Monthly prints settled into a 2 to 3 percent range for most of 2025 before drifting back toward 3.4 percent in March 2026. The primary surplus closed 2025 at AR$11.7 trillion, around 1.4 percent of GDP, with an overall financial surplus of 0.2 percent. It was the first time Argentina had recorded two consecutive cash-based financial surpluses since 2008. INDEC poverty data tracked the disinflation in lagging fashion: 52.9 percent in the first half of 2024 after the December devaluation shock, 38.1 percent in the second half, 31.6 percent in the first half of 2025, and 28.2 percent by the second half, the lowest reading since the first half of 2018. The disinflation, rather than redistribution, did the work.

Caputo’s Sequencing. The architecture of the program is Caputo’s, not Milei’s. The president supplies the political cover, the rhetorical chainsaw and the libertarian theology; the minister at Hacienda runs an orthodox stabilisation pulled from the textbook. Phase one was the December 2023 fifty-percent peso devaluation paired with an immediate fiscal slash of pensions, transfers, energy subsidies, public works and provincial transfers. Phase two locked in the resulting primary surplus and ran a crawling peg at 2 percent per month against the dollar through 2024. Phase three, opened on 14 April 2025 alongside the IMF arrangement, replaced the crawling peg with the floating band and removed the dollar-purchase cap of USD 200 per month for individuals. The dollarisation that Milei campaigned on, central to the 2023 platform, has been quietly shelved. The framework now in place is currency competition with a managed float, more Peru than Ecuador. Bausili at the central bank, not a Cato-imported dollarisation team, is the operative reality.

The Capital-Markets Verdict. Sovereign markets have rendered their judgment in basis points. The JPMorgan EMBI+ spread for Argentina collapsed from around 1,080 basis points in mid-October 2025 to roughly 630 to 650 after the midterm vote, then to the mid-500s by year-end. S&P upgraded the local-currency sovereign to CCC+ from selective default in December 2025. In late 2025 Argentina returned to international markets with a USD 1 billion four-year Bonar 2029 at a 6.5 percent coupon, oversubscribed at USD 1.42 billion across more than 2,500 accounts, its first voluntary issuance in eight years. On 9 October 2025 the US Treasury under Scott Bessent activated a USD 20 billion currency swap line from the Exchange Stabilization Fund, of which roughly USD 2.5 billion was drawn by end-October before the central bank repaid the line in full by 9 January 2026. Bessent flagged a further USD 20 billion in private-sector co-financing under negotiation. The combined multilateral and bilateral backstop, IMF EFF plus US Treasury swap plus private syndicate, totals up to USD 40 billion of underwritten Western capital.

The October 2025 Midterm. The political test arrived earlier than Milei’s critics expected and he won it cleanly. La Libertad Avanza took 40.8 percent of the national vote on 26 October 2025 against roughly 32 percent for the Peronist front, gaining 64 seats in the Chamber of Deputies to reach a bloc of about 92 to 95, comfortably past the 84-deputy threshold required to sustain presidential decrees and block opposition supermajorities. In the Senate the bloc rose from 6 to 19. It was the first ruling-party midterm victory in Argentina since 2017. The result repriced Argentine risk overnight and gave Caputo the legislative runway to push the next tranche of structural reforms through the new chamber. Approval polling tells a more textured story. The AS/COA tracker and AtlasIntel readings put Milei in the low forties through late 2025 before a slide to 36.4 percent by March 2026 and roughly 35 percent in May 2026 as unemployment edged up and real-wage pressure resurfaced in services. Disapproval has climbed toward 62 percent. The midterm mandate is therefore a snapshot, not a trend.

The Geopolitical Realignment. Milei’s foreign-policy posture has been the cleanest break with the Kirchnerist trajectory. The December 2023 letter rejecting BRICS+ accession, drafted before he was sworn in, oriented Argentina toward the United States and Israel and away from the Brazil-China axis that Alberto Fernández had been building. The Mercosur relationship with Lula has remained strained, with the two leaders bypassing direct contact at the 2024 Paraguay summit, though the trade architecture has held. The China relationship has reverted from rhetorical hostility to grudging pragmatism, including the renewal of the PBOC swap line and a January 2025 official visit, because Beijing remains a top-two trading partner regardless of ideological framing. The 27 March 2026 Second Circuit reversal of Judge Loretta Preska’s USD 16.1 billion judgment in the Petersen and Eton Park YPF cases, a sum equivalent to roughly 45 percent of the 2024 federal budget, removed the largest contingent external claim and reduced the legal overhang that had complicated reserve accumulation. The Western alignment paid off in courtrooms as well as in Washington.

The Structural Problem. Stabilisation is not industrial policy and Caputo knows it. GDP grew roughly 4.4 percent in 2025 after the 2024 contraction, but the growth has been concentrated in agriculture, mining and finance, the sectors that generate the fewest jobs and the deepest dollar earnings. Manufacturing and construction remain weak, real wages in formal services have not recovered to the December 2023 baseline, and the appreciation of the peso under the IMF program is reproducing the classic dilemma: dollar strength helps disinflation and hurts tradable industry. The poverty improvement is statistically real but partly a measurement artefact, as the sociologist Daniel Schteingart has noted, because self-reported household income recovers as inflation decelerates and respondents reprice. Argentina remains commodity-export concentrated, with the Vaca Muerta shale and the soy complex carrying disproportionate weight in the external account. The central-bank balance sheet is healing but reserves remain below comfortable thresholds for a country of Argentina’s external-debt profile.

The Verdict. Argentina has become the test case for whether the IMF’s Extended Fund Facility framework can survive a true shock-therapy program through a domestic political cycle, and through October 2025 the answer is yes. Milei converted a 5 percent deficit into a 1.4 percent surplus, broke triple-digit inflation, lifted the cepo without triggering capital flight, returned to bond markets at a 6.5 percent coupon and won the midterm. Western capital, the IMF and the US Treasury have effectively underwritten the project to the tune of USD 40 billion of explicit and contingent commitments. The 2027 presidential cycle, not the recent midterm, is now the binding constraint. If the program can hold the surplus and the disinflation through a peso that the band will progressively allow to weaken, the post-2000s template for emerging-market stabilisation runs through Buenos Aires rather than through Brasília or Ankara. If unemployment continues to climb and approval slides below the low thirties before 2027, Peronism returns and the experiment is unwound. The base case, on current evidence, is that Argentina remains the Fund’s most expensive success story and the most consequential macro experiment in the hemisphere.

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