Facing another binary election
Today in Argentina, a dollar boom in the external sector, driven by a still extraordinary combination of prices and volumes and joined by the dollars from corporate and provincial debt placements, coexists with an economy that fails to take off. August’s EMAE stands 2.4% below the February 2025 peak. Exports are growing, but consumption remains stuck and investment keeps falling. Household incomes are falling, fiscal policy keeps cutting spending in the face of revenue that does not react, and credit remains stuck. The channels that should connect the inflow of dollars with aggregate demand are not working, and the stimulus measures being announced are small doses that do not move the aggregate.
The problem is that the deflationary adjustment involved in using the dollar as an anchor to bring down inflation, while a large share of services remain indexed, squeezes the budgets of households and the balance sheets of companies that play in the old economy. Deflationary adjustments can be expansionary when they manage to coordinate a fall in interest rates, as happened in the European periphery upon joining the euro or after the 2008 crisis, when the European Central Bank’s intervention ended up convincing the market. Today in Argentina, electoral uncertainty has once again pushed country risk up to 925 bps, and although the short-term peso rate remains managed (with more noise since the election in Brazil), high spreads and arrears continue to constrain the supply of credit.
The paradox extends to the peso circuit. The BCRA buys dollars and issues pesos which, faced with a credit demand that does not react to current lending rates, end up mostly in the banks financing the Treasury. In turn, since the rise in country risk put an end to dollar debt placements, the Treasury needs to place peso debt above its maturities in order to buy dollars from the BCRA and meet the financial program. So far this year, it used all the pesos it withdrew for the financial program, while its balances at the BCRA only rose because of the transfer of profits (there are $9 trillion) and its deposits at Banco Nación fell to $8 trillion, after this week’s $1.7 trillion buyback of long-term bonds. Peso debt measured in dollars rose USD28,000 million, two thirds of which are indexed to the dollar. Meanwhile, the dollar needs of the Treasury and the BCRA in 2027 went from USD9,300 million when the program was presented in June to more than USD23,000 million with a primary surplus of USD10,000 million. The dollar-rate equilibrium holds as long as the BCRA keeps buying dollars and the Treasury obtains the pesos needed to finance its dollar and peso maturities, and that is what is starting to come under strain.
The outlook for the supply of dollars remains very favorable. Agriculture would contribute USD30,600 million in 2027, compared with USD29,400 million this year, while oil and mining continue to expand their export capacity. By contrast, the private financing that supplied the FX market during 2026 could change sign. Dollar bank credit, which contributed a net USD9,000 million, could turn to demanding USD6,000 million if banks rebuild liquidity in the face of electoral uncertainty. A difference of USD15,000 million. On top of this come corporate and provincial maturities of USD10,800 million in 2027, which, even assuming they are refinanced, would imply a smaller net contribution of dollars than in 2026, when USD15,000 million were settled under this item through September.
The RIGI update does not change the trend: approved projects went from 23 to 27 since our memo and computable capital increased 69%, to USD57,072 million. But the impact on short-term aggregate investment remains limited, barely USD5,000 million, 4% of annual investment, and for 2027, linearizing the commitments, there would be USD5,000 million more. The associated tax expenditure in present value rises to USD11,495 million and the breakeven falls to 31.1%, but it rises to 41.2% for the Nation and falls to 12.1% for the host provinces. The other leg to watch is the free availability of foreign currency: 30% of the increase in exports in 2030 and 70% in 2036. Once again, the scheme works if the whole economy converges to it, and it generates large asymmetries if this does not happen.
In this context, entering November, we are changing the narrative of the scenarios we have been working with since December 2025. We are crossing out the scenario of centripetal (ordering) forces, in which financial normalization improved the economy and the polls and extended the horizon, and we are keeping the one of centrifugal (disordering) forces, in which economic stagnation spills over into the markets and feeds back into uncertainty. The former required two simultaneous certainties: that the ruling party avoid a runoff against what the market considers «the abyss», and a lender of last resort willing to intervene. Today both certainties are weaker. The economy does not help a first-round victory for Milei and, although suspending the PASO could help keep the opposition divided, it does not guarantee that he reaches 40% nor does it avoid the risk of a fragmented election. On the other hand, the result of the US midterm elections, with the Democrats regaining both chambers of Congress, introduces a potential political constraint on US financial backing, even though Bessent is still there today and the USD20,000 million swap remains in force.
The scenario remains binary in the face of the possibility of continuity or a change of government in 2027. Since neither outcome has a probability of one, country risk should find a ceiling, even if the market prices each outcome very differently.
Two scenarios through November 2027: “The bazooka is enough”, in which the Government manages to sustain the financial and FX scheme until the election; and “The bazooka is not enough”, in which uncertainty accelerates dollarization, strains the peso and dollar markets and feeds back into the dynamics. What happens afterwards will depend on the electoral result, which is open today. But not only on who wins, but, in the event of a change, on the financial conditions in which the transition is reached and, fundamentally, on the possibility of building bridges to finance it and provide certainty about the continuity of contracts, in a polarized society with growing demands on incomes and the budget. The prospect of more dollars from the external sector makes it possible to envisage transition scenarios without a rupture, but that requires coordination among the actors which, given the caliber of the current conversation, does not seem to be near.
Facing another binary election