Analysis: After landslide win, expect a more moderate Milei

Prior to Argentina’s presidential runoff last Sunday, which saw insurgent libertarian firebrand Javier Milei defeat his Peronist rival Sergio Massa in a landslide, the last presidential candidate to secure more than 55% of the vote had been Juan Perón himself—in 1973.

This unusually strong popular mandate is in sharp contrast to Milei’s nearly unprecedented lack of institutional political strength. His Libertad Avanza party holds a mere 38 of 257 seats in the National Assembly, and is even weaker in the Senate.

And Milei is the first president-elect in Argentina’s democratic history without a single party ally among the provincial governors (who are very powerful figures in heavily federalized Argentina.)

Regional shift

The result reinforced two powerful regional presidential trends. After last Sunday, incumbent political parties (leaving aside the dictatorships such as Venezuela and Cuba) have now lost 17 of their last 18 reelection attempts across Latin America. Second, candidates such as Massa who place first in the initial round of a two-round runoff election are increasingly losing the second round. Only three of 11 have gone on to win again in the second round. Both tendencies reflect the extent to which Latin American voters today are increasingly voting against certain candidates or parties rather than for them.

We doubt Milei will ultimately prove any more successful than his predecessors in resolving Argentina’s key structural weaknesses

This psychological sea change has major consequences for governance. Presidents come into office weaker than their mandates would otherwise imply and enjoy far briefer legislative and public approval honeymoons than ever before. There has also been a proliferation of politicized impeachment attempts in recent years and of dead-on-arrival political agendas irrespective of ideology. With rare exceptions like Mexico, El Salvador and the aforementioned dictatorships, Latin America’s presidencies are becoming increasingly irrelevant to actual policy.

Colombia’s Gustavo Petro, Brazil’s Jair Bolsonaro and Chile’s Gabriel Boric may not have much in common, but this they share.

Progress vs pragmatism

Historically, Argentina has been more treacherous territory for outsiders than most. Prior to the presidency Mauricio Macri—president from 2015 to 2019—no non-Peronist president had ever even managed to successfully complete their term in office. For Milei, the need to secure his alliances with the institutional rightwing parties he initially ran against, including figures like Macri and Patricia Bullrich, as well as right-leaning Peronists like Juan Schiaretti, will be as much a matter of survival as of policymaking. His coalition-friendly cabinet picks this past week, as well as his uncharacteristically inclusive (if typically vague) victory speech, strongly imply that he understands this.

So how will his more ambitious plans, such as replacing the Argentine peso with the US dollar, slimming down the government to just eight ministries, and dismantling the central bank, play out? These are heavy lifts that would all require considerably greater legislative and gubernatorial support than he is ever likely to see. More likely we will get a tonal shift toward pro-market policies and moderate fiscal reforms—an outcome similar to Macri’s—which provide some relief to Argentina’s crisis-crippled economy at a palliative level but do little to address its underlying chronic challenges.

Until this becomes clear to investors, we would expect Milei’s victory to be better received by bondholders than by nervous currency markets at the outset. A bit further out both are likely to benefit from traditional anti-Peronist relief rallies during Milei’s honeymoon period beginning on 10 December. Yet we doubt Milei will ultimately prove any more successful than his predecessors in resolving Argentina’s key structural weaknesses: fiscal irresponsibility, economic policy inconsistency, and a bloated state bureaucracy.

Daniel Lansberg-Rodriguez is cofounder and managing director of advisory firm Aurora Macro Strategies