What to Expect from Argentina's Economic Reforms after Milei's Midterm Success

Milei’s new sway in Congress also expands his power over Argentina’s governors. In the midterms, several national legislators who represent political parties affiliated with Argentine governors lost their seats, severing a voice for these regional officials in Buenos Aires. "Many governors will now have to cooperate with the national government to get the resources they need for initiatives,” said Gala Díaz Langou, executive director of the Center of Implementation of Public Policies for Equity and Growth, a Buenos Aires-based think tank.

Milei’s new political reality may be evident in how he reshuffles his cabinet, an action he promised to take shortly after the election. In the past, Milei used cabinet picks to appease factions whose support he was seeking. Now, he might not have to.

On October 22, just before the midterms, his foreign minister resigned and Milei appointed Pablo Quirno, a close ally of Economy Minister Luis Caputo, to the position. Rather than pick someone to curry favor with a different political party or movement, he went with a loyalist.

In the coming weeks, Milei will make at least two more changes to his cabinet. Security Minister Patricia Bullrich and Defense Minister Luis Petri won congressional seats. "Right now, he’s strong enough, has legitimacy, and has the renewed mandate to put whoever he wants in the Cabinet,” said Díaz.

What reforms may be first on the docket when the new legislative session begins on December 10?

Labor reform is a priority. “Argentina’s labor regulation is extremely outdated,” explained Díaz Langou. “The main law that regulates how we hire is from the mid-1970s. The labor market has changed a lot—not only in terms of how we work but also the [rise in the] rate of informality.” While the specific content of the reforms has yet to be announced, Díaz Langou predicts that the legislation will focus on reducing informality by lowering the cost of hiring.

A tax reform may also be on the horizon. “The overall idea is to reduce the tax pressure in Argentina,” Díaz Langou explained. One tax she said Milei has voiced an intention of reducing is the value-added tax, which disproportionately impacts disadvantaged communities.

“A labor reform and tax reform will be negotiated with allies, some governors, and even with some Peronists that are not [allied with former President Cristina Fernández de Kirchner], Díaz said, “He will try to do that fast.” The president may call for special sessions before March to expedite his reforms, he added.

Other potential legislative initiatives to watch include pension and penal reforms. And Milei will use his new leverage to try to pass a budget. Argentina has been using its 2023 budget for two years due to Congress’ inability to approve a new spending plan.

Outside of Congress, Milei’s midterm victory will help him maintain his economic reforms designed to lessen state control over Argentina’s economy.

Since he took office in December 2023, Milei has implemented austerity measures that have cut government programs and reduced the size of the federal bureaucracy. In April, he removed many of the country’s currency and capital controls that were used to maintain a set exchange rate for the Argentine peso and prevent capital flight.

As Milei removed the regulations, the International Monetary Fund approved a $20 billion bailout package designed to shore up foreign currency reserves. Leading up to the midterm, the government struggled to keep the peso exchange rate in its target band, selling dollars and reinstating some foreign exchange measures. 

Then in September, the Trump administration announced it was considering a package of economic aid to Argentina. On October 21, U.S. Treasury Secretary Scott Bessent announced a signed agreement that provides for a $20 billion currency swap. Bessent has also mentioned that his administration is working with the private sector to provide an additional $20 billion in financing. Markets responded positively to the potential offer. Trump made it clear, however, that the economic aid was contingent on Milei’s performance in the midterm election.

“The support of Bessent and Trump was instrumental to maintaining macroeconomic stability to the country,” explained Díaz. “If macroeconomic stabilization was a major accomplishment of Milei, maintaining that was extremely important to making Milei attractive to voters.”

Both analysts expect Milei to continue with his economic agenda. “The results of Sunday reaffirm this direction, and the government is much more capable of defending that position, despite the fact that we are in deep a recession. I don’t think that they are reconsidering their strategy,” said Díaz Langou.