Comprising just 7 percent of Latin America’s population and 10 percent of its GDP, Argentina was not top of mind for global affairs analysts until September, when U.S. Treasury Secretary Scott Bessent pledged to do “whatever it takes” to support its embattled currency and its libertarian president, Javier Milei.

In contrast, Argentina had undeniably been top of mind for the International Monetary Fund for decades, and intensely so since 2018. In July of that year, the fund lent $50 billion to Argentina under a program negotiated with then-President Mauricio Macri. The loan was the IMF’s biggest ever to a single borrower, even before being augmented by a further $7 billion as Macri’s difficulties quickly worsened. Argentina borrowed billions more from the fund in 2022 to help pay back its earlier loan, and a further $20 billion in a new program under the Milei administration in April 2025. When Bessent announced his intervention late in 2025, Argentina still owed the IMF $57 billion, more than a third of the multinational crisis lender’s total outstanding loans.

Bessent’s intervention was not motivated by concern for the IMF’s balance sheet. He chose instead to label Argentina a “systemically important U.S. ally in Latin America.” But that description seemed implausible in historical context – say, when compared with the truly systemic Mexican currency crisis of 1994-95, which also elicited a massive U.S. rescue.

Mexico’s 1994-95 crisis sent shockwaves throughout Latin America and threatened broader economic stability in the Americas. For one thing, the Clinton administration feared migrants would flee north in the wake of the economic calamity. For another, the North American Free Trade Agreement had launched only a year earlier – and Mexico accounted for a large share of U.S. goods exports, 9.92 percent in 1994 against Argentina’s 0.44 percent of U.S. goods exports in 2024. In 1994, Mexico generated about 30 percent of Latin America’s dollar GDP and comprised 19 percent of its population.

But Bessent’s understanding of “systemic” flowed from ideology, not economics. In his telling, Argentina under Milei was a “beacon” to draw other Latin American countries away from left-leaning leaders. The second Trump administration’s new National Security Strategy soon revealed that Argentina was only the spear-tip of a wide-ranging plan to establish U.S. commercial and military dominance in the Western Hemisphere while rooting out Chinese influence and narcotraffickers.

President Trump meddled in Honduras’s presidential election later in 2025. The Venezuelan takeover came early in 2026, followed by joint military operations in Ecuador, increased economic pressure on Cuba, and a new “Shield of the Americas” summit with the Trump administration’s “strongest likeminded allies” in Latin America (and therefore excluding the leaders of Brazil, Colombia, Mexico and Peru, which together comprise about 65 percent of the region’s population). Several South American countries, including Argentina, have engaged with the United States’ efforts to reshape supply chains for critical minerals.

A big question for Milei is whether he can harness the U.S. government’s new focus on Latin America to achieve his own ends. Historically, relations between the two countries have been tortuous, with long periods of mutual frustration or indifference punctuated by briefer periods of rapprochement (at least at the level of ruling elites). Now, Milei is hugging Trump tightly, hoping U.S. support will be the magic ingredient that helps him produce macroeconomic stability and growth where other Argentine leaders failed.

Trump has telegraphed, however, that ongoing U.S. support is contingent on Milei’s political success. Milei’s re-election bid looms in October 2027, and the economy’s performance in the coming months will no doubt be the dominating factor in the outcome.

While Milei has been remarkably successful in reducing inflation and restoring overall growth, many Argentines still suffer economically, unemployment has risen and the government remains reluctant to issue bonds in global capital markets to cover its big bills to foreign creditors. Worse, Argentina’s monetary policy framework may not be up to these challenges, and any economic instability could be magnified if Milei falters and Trump decides he needs a steadier “beacon.”

The Argentine Economic Puzzle

Until recently, Argentina has flown below the radar of the American public apart from cameo appearances like the hit musical Evita, Jacobo Timerman’s searing account of human rights abuses under military rule, the Falklands War, and the football exploits of Maradona and Messi. But it has been a perennial object of fascination for economists.

With abundant resources and a highly literate population, Argentina has vast economic potential that never seems to translate into sustained advancement, with hopeful stretches of growth collapsing into crisis and high (even hyper) inflation. That potential was evident in the late 19th and early 20th centuries as the country’s bountiful exports of beef, wheat, corn and wool on occasion gave it a spot on the list of the 10 richest countries in the world, measured by real per capita income. Yet after World War I, Argentina fell behind and has never durably recovered.

Argentina’s singularity stands out especially clearly when it is compared with other economies that received waves of European immigration in the century before World War I. In research that was awarded the 2024 Nobel Prize, Daron Acemoglu, Simon Johnson and James Robinson observed that countries with high rates of European settler mortality due to malaria and other tropical diseases tended to become extractive colonies where oppressive governing institutional structures took root and persisted, at the cost of later economic growth. In contrast, the large flows of European migrants to more temperate regions – the United States, Australia, Canada and New Zealand – brought along institutions that protected individual property rights, promoting investments and market development supportive of long-term growth.

But despite being a temperate country also settled mostly by Europeans, Argentina has lagged far behind the other “regions of recent settlement.” Even largely tropical Brazil, with its legacy of plantation slavery, is no longer far behind Argentina. These facts encapsulate the Argentine puzzle.

The Blaine Doctrine

Trump’s 2025 U.S. National Security Strategy proclaims, “We will assert and enforce a ‘Trump Corollary’ to the Monroe Doctrine” in the Western Hemisphere. However, the true precursor of Trump’s approach is not Monroe but James G. Blaine of Maine, a speaker of the House, senator and Republican presidential nominee who also served as secretary of state under three presidents in the late 1800s.

While Trump often speaks fondly of another 19th-century leader, President William McKinley, it was Blaine who authored a strategy toward U.S.-Latin American relations that is startlingly similar to Trump’s. Obsessed with countering British influence in the Western Hemisphere and less of a dogmatic protectionist than most other Republicans at the time, Blaine tried to use trade to draw Latin America economically and strategically closer to the United States while promoting U.S. exports. He called the process “annexation of trade,” not of territory.

As historian Marc-William Palen recounts:

The 1890 McKinley Tariff … was authored by … [then] Ohio Congressman William McKinley and Secretary of State James G. Blaine of Maine. The tariff allowed the United States to expand its informal empire through its protectionist reciprocity provision . … This meant that the 1890 tariff allowed for the signing of a series of bilateral reciprocity treaties, mostly in undeveloped regions of Latin America, so as to expand U.S. market access while also curtailing the ability of signatories to sign similar treaties with the American empire’s European rivals.

Blaine also sponsored the Pan-American conferences (the first one taking place in 1889) with a grand hemispheric customs union among its goals. The trade project failed. But the Pan-American conferences continued periodically over the years, with the ninth (in Bogotá in 1948) creating the world’s oldest regional organization, the Organization of American States. Now Trump wishes to sidestep the OAS with his narrower Shield of the Americas.

Blaine especially resented British dominion over Canada, which he sought to make the 45th U.S. state. The McKinley Tariff included punishing duties on Canada and omitted the opportunities to negotiate bilateral exemptions that were available to some Latin American countries. As in recent experience, the tariffs only enraged the Canadians. Rather than joining the United States to escape them, Canada retaliated harshly and diverted its trade toward Britain.

Two of Argentina’s biggest exports, beef and wool, were excluded from bilateral arrangements that might spare them from the McKinley tariff. But Argentina had other reasons to resist the U.S. ambitions in Latin America. Carlos Díaz-Alejandro, one of the pre-eminent economic historians of Argentina until his untimely death in 1985, explained how Argentina opposed U.S. regional policies and aligned itself with Britain, its major creditor:

At least since the first Pan-American conference in 1889, Argentine foreign policy had clashed with that of the United States. … Argentina came to view herself as the other major power in the Western Hemisphere, one whose strong economic and cultural links to Europe and whose desire for an independent stand in international affairs, made her skeptical of U.S.-sponsored Panamericanism. During the early decades of this “American Century” both Right and Left in Argentina criticized United States intervention in the Caribbean and Central America. … In spite of her close economic ties with the United Kingdom, Argentina remained strictly neutral during the First World War, and voiced opposition to the harsh terms imposed on Germany by the Treaty of Versailles. Argentina became an active and respected member of the League of Nations, adopting what today would be called a “non-aligned” stance.

Interwar Turbulence and Peronism

Despite Argentina’s adoption of strategic independence in the 1920s, the U.S. became its biggest source of foreign finance and manufactured imports like automobiles and farm equipment, though Britain remained the prime destination for its exports. When the Great Depression arrived, U.S. financial flows dried up as the United States, Britain and other countries restricted access to Latin American exporters. Less able to sell abroad or to secure foreign financing, Argentina had little choice but to expand its domestic industrial base and produce more of what it had imported, drawing labor from the countryside into the major cities.

World War II accelerated this process. Argentina found it hard to obtain imports during the war due to shortages and disrupted shipping. Moreover, Argentina’s neutrality in the conflict and its continuing dealings with German businesses further alienated Allied countries.

Argentina did finally declare war on the Axis, but barely in time to be made a founding member of the United Nations. And its postwar relations with the United States remained troubled into the 1950s. In an apparent attempt to undermine Juan D. Perón, who was elected to Argentina’s presidency in 1946, Marshall Plan administrators went so far as to forbid aid recipients from using the funds to buy Argentine products.

Perón came to power on the back of a growing urban, working-class constituency, offering populist promises to further industrialization and to assert a bigger government role in management of the economy. In particular, Peronism included redistribution of income away from traditional land-owning elites and toward workers (through higher wages and social benefits) along with creating a Peronist elite of functionaries extracting economic rents through an elaborate state patronage system. Industrialization meant import substitution supported by industrial tariffs, government-directed credit and controls over foreign exchange transactions.

The Peronist policy mix, coupled with a government budget deficit that had to be financed by printing money, touched off the inflationary process that characterized Argentina in the decades after. It morphed into hyperinflation around 1990 before being contained for about a decade (see the figure on page 29), which plots the monthly inflation rates corresponding to year-over-year inflation rates.

There is no one-line answer to the puzzle of how Argentina fell from its high-income status before World War I. But any explanation for its poor postwar performance must include the tenacious hold of Peronism, which itself has deep social causes. In most incarnations – under Perón himself (1943-55 and 1973-74), his third wife Isabel (1974-76), Néstor and Cristina Kirchner (2003-15) and Milei’s immediate predecessor, Alberto Fernández (2019-23) – Peronism led to macroeconomic instability and pervasive clientelism and corruption, which in turn have underpinned the movement’s strikingly durable political base. But Peronism as a political movement could on rare occasions depart from Peronist populist economic policies.

Carlos Menem (served 1989-99) was the exceptional Peronist president: his neoliberal policies, a radical break from the past, produced the decade of price stability until a chaotic financial collapse in late 2001 that ultimately brought the Kirchners to power. Several factions now inhabit the large Peronist tent, drawn together when political power is at stake by a populist orientation and partisan identity, along with their shared commitment to state power.

As president, Perón not only imposed a populist agenda, he channeled longstanding Argentine resentments against the United States. His antagonistic stance toward the UN, which he viewed as a tool of U.S. imperialism, included a refusal to join the IMF. In September 1955, worsening economic conditions, along with Perón’s battles with the Catholic Church and his personal deterioration after the premature death of his wife Eva in 1952, inspired a military coup.

Exactly one year later, Argentina finally joined the IMF. And in December 1958, the government agreed to an IMF-supported loan and stabilization program – the first in a series of 23 that culminated in the April 2025 IMF loan to the Milei government.

Milei’s Policy Revolution

In the November 2023 runoff election, Milei faced Sergio Massa, the economy minister in the outgoing Fernández government. Massa went all out to pump up the economy and pay off key constituencies before the election – a classic political budget cycle. Year-over-year inflation, already running at 100 percent at the start of 2023, doubled by the end of the year.

Voters had had enough of established politicians. Despite having little political experience – he had gained popular recognition as a television personality – Milei won in a landslide.

Milei’s radical economic platform promised to take a chainsaw to the government budget, to dismantle the web of regulations smothering the economy, and to “dollarize” – that is, to replace the Argentine peso with U.S. dollars. (Currently, the much smaller economies of Ecuador, El Salvador and Panama are dollarized.) Milei stepped back from dollarization after taking office, but he did slash the national budget and erased a deficit that had been running at about 5 percent of GDP. He also scrapped a complex array of trade and price controls. Monthly inflation, running at an annualized rate of more than 1400 percent per year in December 2023, plummeted quickly.

What explains the rapid turnaround in a country where high inflation has been so endemic? Milei’s fiscal bloodletting and his willingness to tolerate the accompanying recession convinced economic actors that deficits would no longer be financed by printing money.

This had immediate inflation-reducing effects. The Nobel economist Thomas Sargent explained the mechanism at work in a classic 1982 paper on historical episodes of rapid inflation reduction:

This is not to say that it would be easy to eradicate inflation. On the contrary, it would require far more than a few temporary restrictive fiscal and monetary actions. It would require a change in the policy regime: there must be an abrupt change in the continuing government policy, or strategy, for setting deficits now and in the future that is sufficiently binding as to be widely believed.

A sharp departure from Argentine business as usual is exactly what Milei was attempting. But to cement the perception of regime change and prevent inflation from returning, further action was necessary.

Managing Inflation Through the Exchange Rate

A supporting element in Milei’s strategy was to move the peso’s dollar exchange rate (the price of dollars in terms of pesos) to a more realistic level, and then to enforce a specific low rate of currency depreciation over time (in economic jargon, a crawling peg) by letting the desired exchange rate determine the overall stance of monetary policy rather than the reverse.

In other words, the central bank was instructed to adjust the money supply to match money demand, given the promised path for the exchange rate. The central bank controlled the exchange rate by exchanging dollars for pesos in the foreign exchange market, and the strict controls over private crossborder financial transactions that Milei initially retained made this easier.

Under this approach to monetary policy, the exchange rate serves as a nominal anchor for the economy, a strong signal of where prices are headed. It ties the peso prices of internationally tradable goods to their global dollar prices, with a major impact on the overall price level that Milei’s trade liberalization measures made stronger and more direct.

Upon entering the presidency, Milei carried out a large, immediate devaluation of the peso followed by implementing a crawling peg that initially forced the currency to depreciate by 2 percent per month against the U.S. dollar. That imposed depreciation rate was reduced to 1 percent a month starting in February 2025. Milei, in effect, was following policies consistent with a longer-term inflation rate of 1 percent per month – still high by international standards, but much lower than Argentina had experienced in the recent past.

Reducing this rate of crawl further over time might have been one approach to bringing inflation to international levels, which averaged about 5 percent per year before the Iran War – and which Milei’s economic team has put forth as a long-term goal. There was one major catch: Milei would need to convince people that the commitment to the exchange rate’s future path was unshakable. Otherwise, inflation expectations (and therefore inflation) would not fall durably.

As it happens, the strategy of reducing inflation by controlling the currency exchange rate had been tried many times in the past, including in Argentina. The approach has failed more often than not, and notably failed in Argentina. While Milei’s personal commitment was unquestionable, several factors common to earlier failed exchange-rate based stabilizations threatened his program’s success.

One major vulnerability was the Argentine government’s low holdings of foreign exchange reserves, which it needed both to peg the peso’s exchange rate to the dollar and to repay its extensive debts to the IMF and other external creditors. In the run-up to the 2023 elections, Peronist economy minister Massa had run the country’s reserves down to very low levels. In the IMF’s accounting, net foreign exchange reserves (reserves minus dollar borrowing) were actually minus $8.5 billion when Milei took office.

A second vulnerability was the ongoing process by which inflation consistently ran at a much higher rate than the peso’s scheduled depreciation under the crawling peg, a phenomenon economists call “real currency appreciation.” This made imports progressively less expensive in peso terms, worsening the trade balance and reducing the country’s earnings of much-needed dollars from exports. The government hoped to fill the gap by inducing Argentines to convert some of the quarter trillion dollars they had squirreled away in mattresses, safes and offshore accounts into pesos. But this effort yielded fewer dollars than were needed.

The April 2025 IMF Program

With dollar reserves still perilously low and falling, Argentina (again) sought relief from the IMF. In April 2025 the IMF committed $20 billion over four years. And it made $12 billion available immediately, a departure from its common practice of doling out smaller sums while monitoring program compliance. To bolster reserves further, Argentina simultaneously renewed a $5 billion currency swap with China.

Milei also moved to mitigate the peso’s real appreciation. He changed the crawling peg to a wider crawling band, with upper and lower limits on the peso/dollar exchange rate expanding at 1 percent per month. The hope was that additional exchange rate flexibility would allow market forces to determine the exchange rate, with the band as a fail-safe in case of extreme volatility. In addition, the upper limit of the band was expected to provide monetary policy with its nominal anchor.

In implementing the new IMF program, Milei made another fateful move that would imperil his new exchange-rate framework quickly enough. His government lifted most controls that had limited both residents’ ability to buy dollars with pesos and importers’ freedom to pay dollars to foreign suppliers. This change made the credibility of the exchange rate limits even more important, as suspicion of an impending devaluation could fuel massive resident purchases of dollars, further draining official reserve buffers and depleting the government’s ability to defend the upper limit of the exchange rate band. In turn, this possibility threatened the nominal anchor on which future inflation control rested.

Potential currency instability became reality in September 2025. Midterm legislative elections were set to be held on October 26, 2025, and Milei needed to increase his strength in the National Congress to prevent Peronists from passing bills sabotaging the government’s economic program and overriding presidential vetoes.

But the president’s popularity had fallen. Not only were many in the economy struggling as high real interest rates held the economy back but scandals involving Milei and his sister were damaging his administration’s claim to have risen above the corrupt past.

Just seven weeks before the national legislative elections, the Buenos Aires provincial legislative elections gave Peronists a 14- percentage-point vote advantage over Milei’s party. Speculation against the peso erupted, and within 10 days the peso was at the top of its band, with the government desperately bleeding reserves to keep the currency from depreciating further. The increasing likelihood of a currency collapse placed Milei’s entire program in danger, which would have spelled sure disaster in the upcoming October election.

Enter Bessent

That’s when Treasury Secretary Bessent said he would “do what is needed” to rescue the peso. The peso rallied as Bessent pledged a $20 billion swap line to the Argentine central bank – in effect, a line of credit – and, in an unprecedented move, intervened directly in the Buenos Aires foreign exchange market to buy a reported $2.5 billion in pesos.

In retrospect, the Trump administration’s commitment to intervention in Latin America, financial or otherwise, was not yet as clear as it would become. To be sure, Trump’s exorbitant tariff on Brazil’s exports to the U.S. in retaliation for proceeding with the prosecution of former president Bolsonaro was announced in July, and the first strikes on small boats in the Caribbean occurred earlier in September. But Trump’s more aggressive initiatives mostly came after the release of the National Security Strategy in November 2025, with its new Trump corollary.

Trump’s interest in Latin America was intermittent during his first term. He supported the Venezuelan opposition and the IMF loans to Argentine President Macri, and he imposed a U.S. citizen loyalist as president of the Inter- American Development Bank, but with no obvious overarching strategy for the region.

The Heritage Foundation playbook for a second Trump term, Project 2025, goes further, but not as far as Trump has now gone. It bemoans China’s inroads in the region, singles out Maduro’s depredations, recommends cooperative action on drug interdiction, and calls for “re-hemisphering” manufacturing and industrial activity. Quaintly, in light of Trump’s second-term demolition of USAID, some of the most detailed recommendations for Latin America are laid out in the Project 2025 chapter on USAID, in which Heritage lauds the agency’s efforts to counter Chinese influence under the first Trump administration and urges their extension. In the event, soft-power investments have not been the central element in Trump’s intensified attention to the region.

The U.S. Treasury’s currency interventions did have the effect of relieving the pressures on the peso long enough to provide a “bridge” to the October 26 election, as Secretary Bessent described it. No one could doubt that the United States had the means to peg the peso to the dollar, even if Argentina did not.

But the decisive factor that saved Milei and the peso was his overperformance in the midterm election. Voters plainly did not want a return to Peronism. Milei’s party gained 41 percent of the vote, more than 16 percentage points ahead of the Peronist coalition and enough to sustain Milei’s vetoes in the National Congress. The path was cleared to implement further liberalizing reforms and run on those reforms in 2027.

A centerpiece accomplishment was the Labor Modernization Law of February 2026, which, to the fury of the Peronist opposition, loosened employment regulations and permitted firm-level wage bargaining. But introducing these changes at a moment of weak employment could prove politically challenging.

Adrift Without an Anchor

Having weathered the immediate currency crisis, Argentina changed its exchange rate regime, effective January 1, 2026. The new system was designed to avoid the problem of real appreciation that could occur when the crawl rate of the band’s upper edge was below the inflation rate. It did so by indexing the rate of crawl to the inflation rate two months earlier. For example, with a November 2025 (monthly) inflation of 2.5 percent, the band expanded by 2.5 percent in January, rather than the previous 1 percent, exactly counteracting the lagged effect of inflation. Immediately, the band of currency flexibility began to expand more quickly.

While this scheme addressed one problem – enforced real peso appreciation – it created another. Monetary policy now lacked a nominal anchor. Whatever inflation rate prevailed in a given month would determine the maximum rate of currency depreciation two months later. Conversely, the rate of currency depreciation two months ahead would drive inflation in that month by dragging up import prices. The new system was entirely self-referential, with no concrete anchor to pin down the path of prices or inflation expectations. Nothing in the system works to force inflation down to the central bank’s stated goal of converging to global average inflation levels. If inflation accelerates, the upper edge of the policy band follows suit with no natural limit.

To complicate matters, the government must also accumulate enough dollars in reserve to defend the exchange rate band in case of attack and to help service its extensive hard currency payment obligations to foreigners coming due over the next quarters. To do this without igniting more inflation – by purchasing the needed dollars from the public with pesos – depends on the public being eager to convert dollars into pesos at scale and hold the pesos as cash.

Lacking such a sufficient increase in the demand for pesos, the government has deployed an array of Rube Goldberg-like ploys to meet its obligations. For example, in late December 2025, it repaid a $2.5-billion drawing on its U.S. currency swap line using funds obtained from an “unnamed multilateral institution.” Analysts believe that institution was the Bank for International Settlements, which may have accepted Argentine gold reserves as collateral – gold that Milei had spirited out of the country to London or Switzerland in June 2025. Likewise, in January 2026, Argentina was able to repay several billion dollars to private creditors by entering into a repurchase agreement with six big foreign banks, including a Chinese bank, using heavily discounted government sovereign bonds as collateral.

Despite purchasing $5.5 billion from the public with pesos through April of this year, Argentina’s net reserves remain short of IMF targets as these purchases were mainly used to meet debt-service obligations. All this amounts to running to creep forward.

An easier route forward would be for Argentina to take advantage of its improved reputation in international capital markets to simply borrow dollars and repay previous creditors, much as Ecuador did in January 2026. But Milei’s team apparently views such market-rate borrowing as too expensive. The president prefers to find ways to reduce the government’s total indebtedness rather than rolling over past foreign debts or relying on cheaper alternative financing.

Argentina will have to pay foreign creditors around $11 billion in the second half of 2026 and more than $30 billion in 2027, sums that may be challenging to accumulate absent further support from the U.S. Treasury or multilateral institutions like the IMF and World Bank. Early in 2026, Argentina’s finance secretary resigned over the government’s delay in tapping the private global capital market.

Under Argentina’s new exchange rate framework, official measures of consumer inflation have been stuck above 2.5 percent per month since late 2025 – an annualized rate of 35 percent per year – rather than declining as the government would prefer. Energy-price escalation due to the war in Iran may add further to inflation, and the increase will automatically feed through to the exchange rate band. That monetary fragility, coupled with higher unemployment (still over 7 percent) and the potential need for further bailouts, could undermine Milei’s currently strong political standing as the October 2027 presidential election nears.

A Better Way

The OECD reckons that 11 countries in Latin America and the Caribbean now have central banks that target inflation rates, in common with the norm in developed economies. Inflation targeting must be based on an independent but politically accountable central bank, a floating exchange rate regime, a publicly announced target for inflation (the system’s nominal anchor) and the flexibility to adjust a policy instrument – for example, a short-term interest rate – to restrictive settings when inflation is above target. Inflation targeting has delivered good results even in the face of domestic political turmoil (Peru being a notable example) and global shocks like Covid-19.

The table on page 35 shows the experience of the five earliest adopters of inflation targeting in Latin America, all of which embraced it around the turn of the millennium after long histories of very high inflation. Their inflation reductions have been big and so far, durable.

Like some of these countries, Argentina could start with a relatively high short-term inflation target (albeit a target below current inflation) and plan to reduce it over time. Market expectations could coalesce around this nominal anchor, which is lacking in the current Argentine framework.

With a floating exchange rate rather than the crawling peg, Argentina would have less need to use reserves for foreign exchange intervention and less reason ever to restrict international payments. This would allow an earlier return to financing on better terms from global capital markets. These reforms would provide a favorable backdrop to realize the country’s growth potential and spur inward investment.

A Delicate Balance

President Milei is currently in a relatively strong political position and has accomplished reforms unprecedented in the Argentine context, but Argentina’s policy framework remains too vulnerable to reversals. Renewed pressures loom in the forms of continuing weak employment, lagging government revenue and persistent attention to corruption in the president’s circle.

With a presidential election due in 15 months, Milei faces a credibility trap. Should the success of his program become widely doubted, his political prospects could deteriorate, making the return of Peronism more likely – a prospect that damages current economic performance and adds to fears of future inflation. Milei should make his policy framework more resilient to economic shocks, which have become more frequent in an increasingly turbulent world.

As in the 19th century, Argentina remains resource-rich with enormous potential. Its Vaca Muerta shale formation holds huge reserves of gas and oil. Argentine farmlands are still extraordinarily productive. Significant deposits of lithium, copper, uranium and other sought-after elements have yet to be fully tapped. Finally, Argentina has a talented, well-educated workforce. Macroeconomic and political stability are prerequisites for the effective mobilization of these resources.

Under Trump, the United States may not prove a steadfast ally if Milei’s political fortunes waver. On the other hand, if Milei succeeds and finally breaks the hold of Peronism, other countries in Latin America may well adopt aspects of his approach – as Secretary Bessent hopes. But theorists of a “Western Hemisphere first” version of Trumpism should be careful what they wish for.

Latin American countries, including Argentina, depend strongly on trade with China and the European Union, among other non- U.S. trade partners, and they will not easily accede fully to the “Trump corollary.” Many will resist other possible U.S. demands, such as pivoting away from renewable energy use. A strong and democratic Argentina that has overcome the politics of the past and reclaimed some of its 19th-century economic mojo could shake off U.S. domination and return to its traditional independence in foreign relations.