Initial surprise at the unexpected electoral victory for Javier Milei’s libertarians turned into full-blown euphoria. Economy Minister Luis ‘Toto’ Caputo has been making the rounds, once again promising a boatload of U.S. dollars in productive investments while defending the government’s economic policy — particularly the contested exchange rate “bands” that limit the peso’s strength and weakness.
We’ve seen this story before. Politically, President Milei appears to have taken a back seat, with Presidential Chief-of-Staff Karina Milei running the show, empowered by the sweeping victory in last month’s national midterms. By elevating presidential spokesperson Manuel Adorni to Cabinet Chief and bringing in Diego Santilli as Interior Minister, Karina is attempting to secure the trifecta of reforms her brother supposedly needs to put Argentina on an inexorable path to economic greatness. Adorni and Santilli are already negotiating with provincial governors and other political actors to secure votes for labor and tax reforms. Pension reform appears less urgent, probably a reminder of the widespread protests that contributed to the unraveling of Mauricio Macri’s government in 2017, when he pushed through similar measures. Macri did manage a tax bill and a fiscal pact with provinces, but his government ultimately ended in shambles — a reminder that reforms alone do not guarantee success. For Milei, however, this is no immediate concern; he continues to bask in victory and dream of hegemony.
Milei and his La Libertad Avanza coalition have been given a second chance — one that Macri once coveted. In many ways, this resembles the “second half” of Macri’s tenure, given that Milei has incorporated several of his former key players into government: ‘Toto’ Caputo managing the economy; Patricia Bullrich at the Security Ministry up until recently, now also leading the libertarian caucus in the Senate; Diego Santilli as Interior Minister; and Federico Sturzenegger at the Deregulation & State Transformation Ministry. All had previously worked on political projects within the Juntos por el Cambio coalition, which imploded after Macri failed to unify Bullrich and former Buenos Aires City mayor Horacio Rodríguez Larreta. Now Macri sits on the sidelines, while his cousin Jorge defends the libertarian push in Buenos Aires City and several trusted lieutenants have defected to Milei’s purple banner.
To some extent, the surprise September regional defeat in Buenos Aires Province, at the hands of Governor Axel Kicillof and local mayors, set the stage for this libertarian euphoria. Milei and Caputo had burned through every dollar they could access, and their economic model was faltering. Losing “the mother of all battles” in the province sparked a chain of mini-crises that exposed systemic weaknesses and ultimately led to an emergency bailout from the United States. Trump had attempted to assist Argentina during the Macri administration, but IMF support came too late, in the context of a global portfolio reshuffle that hit emerging markets broadly and Argentina specifically. This time, Caputo — having learned his lesson — refuses to lift currency controls, which he sees as essential amid Argentina’s volatile political pendulum swings. He also counts on the explicit support of U.S. Treasury Secretary Scott Bessent, who intervened directly in Argentina’s currency markets and signaled potential bond purchases. This unprecedented level of support “shields” debt payments from market vagaries while Bessent simultaneously encourages testing voluntary debt markets. Argentina’s economy minister also requires the Central Bank to accumulate foreign exchange reserves.
The U.S. backstop has created a wave of hope and optimism that Milei’s administration seeks to capitalize on. Markets are surging, and the country-risk premium has dropped sharply. Local business leaders are beginning to invest, while international investors are paying close attention. To demonstrate the country’s credibility, Milei must secure political support for his reform agenda. In his first year, he acted pragmatically — contrary to expectations — despite the Casa Rosada radicalizing positions and attacking the entire political class during the electoral campaign, including temporary allies. This, in part, fueled expectations that Milei would falter in the midterms, potentially empowering opposition Peronism under Kicillof, locked in constant tension with Cristina Fernández de Kirchner. Demonstrating governability through political agreements is likely more important than the actual content of reforms. This is a primary requirement from the White House and the IMF to ensure emergency financing continues.
Looking back at the Macri experience, multiple risks could derail Milei’s ambitions for reelection in 2027. Macroeconomically, Milei and Caputo rely on U.S. backstops, IMF support, and other temporary financing that has kept the government afloat — often at the brink of collapse. Maintaining an overvalued peso, coupled with negative reserves at the Central Bank, is an explicit market risk. Meanwhile, recession and rising indebtedness are particularly severe, strongly affecting businesses and households — crucial for any recovery. Failing to reverse the negative economic trend will erode Milei’s popularity and could compromise governability, much like Macri’s experience with pension reform. And there is always the black swan risk, especially externally, for which Argentina’s economy is ill-prepared. Known unknowns and unknown unknowns, to borrow former U.S. Defense Secretary Donald Rumsfeld.
Politically, unforced errors and self-inflicted wounds have defined the Milei years. Macri felt invincible after his 2017 midterm victory — as does Milei today. But hubris is a dangerous ailment for victorious politicians. A civil war is unfolding within the Casa Rosada between controversial strategist Santiago Caputo and Milei’s sister, Karina. This conflict has simmered since before the campaign, as ‘Caputito’ amassed behind-the-scenes power and tried to impose a strategic path. Karina, symbiotically linked to her brother, has delegated authority to Lower House Speaker Martín Menem, his cousin Eduardo ‘Lule’ Menem, and LLA Buenos Aires Province organizer Sebastián Pareja. Adorni, Santilli, and Bullrich now join this close-knit inner circle guiding the Milei administration’s political orientation. Caputo remains powerful but disgruntled. The confrontation produces constant noise and heightens the likelihood of mistakes. Dirty laundry is aired publicly by the antagonists themselves. At times, it almost seems scripted — but that would be giving them too much credit.
Milei and his top officials must look in the mirror and understand where Macri failed, where Fernández de Kirchner faltered, and where Alberto Fernández fell short. The opportunity is theirs to seize. Macri’s “second half” is available — the liability, as always, sits at the very seat of power. All the way to the top.
This piece was originally published in the Buenos Aires Times, Argentina’s only English-language newspaper.