¿A winning team (and program) shouldn’t be changed?
The government took an “all-or-nothing” gamble — and it paid off. Scott Bessent’s support in sustaining the exchange rate regime until the end proved crucial to keeping the dollar within the bands and inflation contained around 2% per month (2.4% in our October projection, according to the RPM). The decline in activity driven by the credit slowdown—caused by the overreaction and volatility of interest rates amid a monetary squeeze in an economy that had been operating under a partial FX control since April (with almost no exchange rate gap)—had no impact on the election outcome.
Perhaps fears of a currency crisis following the result in Buenos Aires Province (including Trump’s condition that U.S. support would only be granted to Milei), combined with a lackluster Peronist offering devoid of self-criticism, coordinated—in a context of high polarization and low turnout—a vote in favor of LLA that painted the country purple.
The result was reflected in a significant shift in Congress’s composition. LLA became the largest minority in both chambers: the ruling coalition now holds 113 deputies (with a quorum at 129 and one-third at 86) and 27 senators (with a quorum at 37 and one-third at 24). The improvement in both chambers is substantial, but to pass legislation aimed at boosting the country’s systemic productivity—a prerequisite for opening the economy without wrecking the micro foundations in a more liberalized environment—the government will need to negotiate with the “referees”: 39 deputies and 21 senators from Provincias Unidas, provincial parties, and other allies. A major opportunity opens up.
Milei’s first speech—after a victory that even surprised his own camp—sought to build bridges with provincial governors. So far, there have been no cabinet changes beyond those announced before the election. We expect the first item to be sent to the new Congress after December 10 will be the 2026 Budget Bill. We also understand that the administration intends to revive the Fiscal Innocence Bill, submitted to Congress in mid-year (recall that the goal of this “permanent amnesty” scheme is to bring dormant U.S. dollars into the financial system regardless of their origin, to support the carry trade through increased dollar-denominated credit).
In addition, the government is expected to move forward with labor and tax reforms, including the reduction and/or elimination of Gross Income Taxes and the harmful withholding and perception regimes currently in force (particularly SIRCREB). For now, however, no draft bills are formally on the table.
Dollar-denominated bonds and equities rallied sharply following the election, with the average prices of Bonares and Globales climbing above 70 cents on the dollar, while yields on the shortest bonds fell close to single digits and country risk dropped to 684 basis points. In this context, the prospects for reopening dollar credit markets—closed since early 2018—have reemerged, even without implementing the debt buyback program announced by Bessent, which would be financed through a foreign bank loan backed by U.S. Treasury guarantees. With or without Bessent, market expectations now point to a new sovereign debt issuance, allowing maturities to be financed through market placements rather than by using Central Bank reserves, thus easing one of the main sources of pressure on the program since its inception.
With the financial front clearing after the electoral outcome extended the policy horizon, attention now turns to how the government will recalibrate its macro framework. In the first three days after the vote, FX market intervention virtually disappeared: the dollar touched a floor of ARS 1,320 in early trading on Monday, before closing Wednesday at ARS 1,450, after briefly approaching the upper band amid a dispute over the coverage fixing. Meanwhile, the initial monetary contraction triggered by futures positions pushed interest rates sharply higher, a move that was later softened as the BCRA purchased ARS 1.2 trillion in securities. Additional liquidity—around ARS 5 trillion—will be injected on Friday through the Treasury’s financing program.
The key question is how the market will react to this liquidity injection and to what extent the BCRA will be willing to consolidate the repo corridor it dismantled after unwinding the LEFIs (and only partially reinstated), in pursuit of a FX–interest rate balance that avoids damaging the real economy. The heavy concentration of peso debt maturities remains the program’s Achilles heel. Although this problem was inherited, the transfer of Central Bank debt to the Treasury balance sheet failed to fully resolve it. The fundamental trade-off between interest rates and the exchange rate—in a system now operating without formal FX controls—remains, albeit under less pressure thanks to the electoral outcome and the rally in dollar bonds.
The monetary expansion under the Treasury’s financing program (Punto ANKER) competes with the expansion stemming from reserve accumulation. In a recent presentation, the BCRA Vice President framed this trade-off using new terminology: “inside money” (peso-denominated debt stocks) versus “outside money” (reserve purchases). For the first time in years, a policymaker openly emphasized the need to remonetize the economy through unsterilized dollar purchases—precisely the policy agreed with the IMF back in April under the M2 monetary aggregates program—though no timing or implementation details were provided.
The election result gives the government significant political breathing room to extend its policy horizon and begin rebuilding the other two corners of its triangle—the macro and micro programs—which had become severely unbalanced during the peso sell-off. Presentations by Werning and the first post-election moves suggest two possible dynamics, assuming market access for refinancing both peso and dollar maturities materializes sooner rather than later. A first scenario would maintain the upper FX band, consistent with faster disinflation and slower growth (without an initial correction) and a lower carry-over effect into 2027. A second scenario, more in line with the baseline we have been working with, would involve a recalibration of the bands and the resumption of reserve accumulation.
