Core Viewpoint - Argentine President Javier Milei has rejected investor calls for a free-floating peso, reaffirming the commitment to the current managed exchange rate system until at least the next presidential election in 2027 [1] Exchange Rate Policy - The current exchange rate system in Argentina is a "crawling band," where the peso's trading range against the dollar expands by 1% each month [1] - This approach aims to reduce long-standing economic volatility in Argentina while allowing for a gradual depreciation of the peso [1] Economic Reforms - Milei emphasized the continuation of free market reforms and deepening political and economic alliances with the United States [1] - Despite suggestions from several international investment banks to relax foreign exchange controls following the midterm election victory, Milei has no plans to alter the existing exchange rate design at this stage [1]

Core Points - The "Libertarian Forward Party" led by President Milei won the midterm elections in Argentina, securing over one-third of the seats in the Chamber of Deputies, which is crucial for blocking opposition bills and maintaining presidential decrees [1][2] - The election results were unexpected, as Milei's support had recently faced challenges due to corruption allegations against his sister and ongoing economic crises [2][3] - Trump praised Milei's victory, linking it to a $40 billion aid package contingent on Milei's success, highlighting the political support from the U.S. [1][2] Election Results - The midterm elections involved the re-election of 24 out of 72 senators and 127 out of 257 deputies. The "Libertarian Forward Party" gained 13 Senate seats and 48 House seats, totaling 19 Senate seats and 92 House seats [1] - The main opposition coalition, "Patria Fuerza," holds 24 Senate seats and 79 House seats, indicating that no coalition achieved a majority in Congress [1] Economic Context - Milei's government has implemented severe austerity measures, including significant cuts to public sector jobs and freezing investments in key areas like infrastructure and healthcare [2] - Despite achieving a fiscal surplus for the first time in 14 years and reducing inflation from over 200% to approximately 30%, the economic situation remains dire, with over 250,000 unemployed and around 18,000 businesses closed [2][3] - The government has depleted its dollar reserves to prevent the devaluation of the peso, leading to reliance on U.S. support, including a $20 billion loan from the IMF [3]

Core Viewpoint - Since taking office in December 2023, President Milei's government has implemented a series of free-market reforms and strict fiscal austerity measures aimed at curbing high inflation and achieving fiscal surplus. While these policies have been positively received by international investors, they have also sparked public discontent due to subsidy cuts and factory closures. Following a loss in local elections in September, Milei's unexpected victory in the midterm elections has provided crucial backing for his aggressive austerity policies [1]. Group 1 - In the midterm elections, Milei's "Liberty Advances Party" achieved a significant victory with 40.8% of the votes, securing a crucial position in Congress to facilitate future economic reforms [6]. - The party's performance in Buenos Aires, traditionally a stronghold for the opposition, marked a significant political shift, with the party receiving 41.5% of the votes compared to the opposition's 40.8% [6]. - Despite the electoral success, Milei's government will still need to negotiate with other political forces in Congress to achieve legislative goals, as no coalition has a majority [6][7]. Group 2 - Argentina's economy remains highly dependent on agricultural and energy exports, making it vulnerable to fluctuations in global commodity prices and economic conditions [8]. - Although some economic indicators have shown improvement, such as a decrease in inflation and poverty rates, the cost of living remains high, leading to declining government approval ratings [8]. - A report indicated that economic activity in Argentina is expected to stagnate in the first half of 2025, with GDP showing a 0.1% decline in the second quarter [9]. Group 3 - Following political turmoil in September, the Argentine Central Bank intervened by selling over $1 billion in foreign reserves to stabilize the market [10]. - A historic agreement was reached with the U.S. Treasury for a $20 billion currency swap to bolster Argentina's foreign reserves and stabilize the peso [10]. - Concerns have been raised domestically regarding the dependency on U.S. assistance, with critics arguing that it may compromise Argentina's economic policy independence [11].

Group 1 - Argentine financial markets experienced a rally following the overwhelming victory of Javier Milei's party in the midterm elections, with voters supporting economic reforms through fiscal tightening and free market measures [1][2] - The election results ensure the continuation of U.S. financial aid to Argentina, as President Trump had previously stated that support would depend on the election outcome [1] - Several Argentine stocks surged in pre-market trading, with Banco BBVA rising over 36%, Galicia Financial up 35%, Grupo Supervielle increasing by 31%, Banco Macro climbing 35%, and YPF and Pampa Energía both recording 26% gains [1] Group 2 - Despite a 17.7% year-to-date decline in the Argentine benchmark S&P MERVAL index, the Global X MSCI Argentina ETF saw a 16% increase in pre-market trading, narrowing its year-to-date loss to 10% [2] - The midterm elections involved the renewal of half of the Chamber of Deputies and one-third of the Senate, with Milei's party receiving approximately 41% of the votes compared to 31% for the leftist opposition [2] - Prior to the election, Argentine assets had experienced a downturn due to political tensions following Milei's party's losses in key local elections [2]

Core Viewpoint - Argentina's President Milei has implemented aggressive fiscal tightening and free-market reforms, but following a significant local election loss, the foreign exchange market has become volatile, leading to a sharp depreciation of the Argentine peso against the dollar and declines in bond and stock markets [1][5]. Group 1: Economic Measures - The Argentine government has temporarily eliminated export taxes on grains, beef, and poultry to encourage exporters to bring more dollar income back to the country, aiming to stabilize the peso [3][4]. - The export tax on soybeans has been reduced to 26%, while the tax on its by-products is now 24.5%. Beef and poultry export taxes have been cut from 5% to zero [3][4]. - The government requires exporters to settle at least 90% of their foreign exchange in the market within three working days of submitting their export sales declaration [3]. Group 2: Political Context - The recent election results showed a significant loss for Milei's party, with the opposition receiving 47% of the votes compared to Milei's 33%, raising uncertainties ahead of the upcoming midterm elections [6]. - The political landscape is increasingly challenging, with expectations of continued volatility in foreign exchange and asset prices leading up to the elections [8]. Group 3: Financial Stability - The Argentine government is rapidly depleting its foreign exchange reserves to support the peso, with a record sale of $678 million in a single day, the highest since October 2019 [6][7]. - Economists warn that maintaining the current exchange rate could lead to a return of hyperinflation, jeopardizing Milei's reforms [7]. - The government has submitted a budget proposal for 2026, projecting an inflation rate of 10.1% and a dollar value of 1423 pesos [8]. Group 4: International Support - The U.S. Treasury has expressed support for Argentina, which has positively impacted local dollar rates and boosted stock and bond markets by 20% [9]. - The nature and scale of U.S. financial support will be crucial for the sustainability of Argentina's asset price recovery and Milei's political prospects [9].