Argentina: Milei’s political and financial crisis

Argentinian President Javier Milei’s position is looking increasingly unstable, as his government’s drawn out financial and political crises are picking up steam. The government’s panic is palpable as they stare down the gauntlet to the key midterm elections on 26 October.

As the government’s foreign currency reserves dwindle, bond prices are falling, and investors are ditching the peso and buying dollars. Luis Caputo, the Minister of Economy, has said that he won’t hesitate to spend every last dollar to defend the value of the peso against the dollar.

Financial crisis

Milei has been constantly intervening to prop up the value of the peso to lessen the impact of inflation on prices, as this is the only crumb he can throw to the masses. In the first week of October alone he spent $1.3 billion of the Treasury’s negative reserves to this end, including the deposits of savers in banks, under increased reserve requirements implemented by the government.

Hearing Caputo’s statement, capitalists, sitting on their mountains of government bonds, began to ask if the $7 billion they are owed in the coming months will be paid on time. Milei was suspended over the void when, with only a month until the October legislative elections, it became clear that the state would default on payments in only a matter of days.

The capitalist press was beginning to explore the legal mechanisms that could be used to replace Milei, and who potential replacements would be. As defenders of the system, their goal is, if possible, to avoid an explosion below through a reshuffling at the top.

Faced with this scenario, US President Donald Trump and Scott Bessent, the US Secretary of the Treasury, came out with an initial attempt to ‘rescue’ Milei and Caputo in September. Milei and Caputo flew to Washington and their counterparts there offered photos, posts on social media, and promises of the many instruments that they would make available to stabilise the situation in Argentina.

The capitalist press was beginning to explore the legal mechanisms that could be used to replace Milei, and who potential replacements would be / Image: Gage Skidmore, Flickr

This included the Exchange Stabilization Fund, a US Treasury owned emergency reserve fund, which could buy Argentinian debt or swap currencies. This was all settled in an improvised meeting which barely lasted twenty minutes and did not produce any concrete decisions. What was presented in Argentina and to creditors around the world as a new “historic era” was just the panicky flailing of an unstable government.

The photos with Trump had the effect of boosting the markets for approximately three days, after which time the peso and government bonds began to fall. JP Morgan’s foreign bond risk index (EMBI), which determines how much an unstable country must raise interest rates to access credit, subsequently began to climb again.

Without any cash in hand after the meeting in the Oval Office, the economy minister Caputo and his team needed to find another source of quick dollars. They arranged this with the massive agro multinationals, who were offered a three day ‘export tax holiday’ to speed up sales of agricultural goods and bring in dollars. This created tensions with the landowning oligarchy, normally supportive of Milei, who had already had to absorb the cost of this tax when selling their produce to the wholesale exporters.

This move also created political consequences further afield. Argentinian, and to a much larger degree Brazilian, soybean exports to China have been overtaking those from the United States. The tax-exempted Argentinian soybeans flooded the market and hurt the profits of US producers, causing a scandal among farmers in Trump’s political base.

Bessent had to insist that the swap didn’t mean giving dollars to the competitors of US farmers, and the United States would not be bailing out Argentina. But the swap is meant directly to ease the financial pressure caused by the Central Bank of the Argentine Republic’s shortage of dollars, and means trading $20 billion over the course of the deal for an equivalent value in pesos, which must later be returned. Although, far fewer than $20 billion will be disbursed before the midterm elections.

On Monday 6 October, Caputo crawled back to Washington to firm up the swap deal, and on Thursday 9 October, Scott Bessent announced its finalisation. Once again the intervention of the US government has buoyed the hopes of the financiers and speculators, who see their profiteering as being underwritten by the US government. Argentinian stocks have shot up by as much as 27 percent, and Argentinian bonds have gained value by as much as 8 percent.

We must not forget though that $20 billion can only temporarily stabilise the Argentinian Central Bank and in this context may dry up faster than Bessent or Caputo expect. The day before the currency swap went through, the Central Bank had only $353 million in its coffers. Without this injection of dollars they would not have been able to continue intervening to prop up the peso, and would have had to accept a massive devaluation.

It should also be said that the swap won’t be freely given, but will come with certain conditions. Specifically, the new swap should substitute the existing $18 billion swap that exists with China, as Trump and Bessent look to weaken China’s influence in the country.

Imperialist tug-of-war

Trump is looking for an ally in Milei, as he tries to bolster South America against Chinese imperialism. But Trump can’t turn back the clock to the days of the Monroe Doctrine, and the US’ total domination over the continent. China has become the largest trading partner of Argentina, Brazil, Chile, Ecuador, and Peru. The Lula government in Brazil and the Petro government in Colombia are leaning on Chinese imperialism to put up resistance to Trump, and the governments of Uruguay and Chile are also partially distancing themselves from the US.

Trump is doubling down on Milei politically and economically as one of his only counterweights to China in the region / Image: Gage Skidmore, Flickr 

While he applies punishing tariffs on Brazil, and threatens Venezuela militarily, Trump sees Milei as a bulwark against China. He seeks not only to weaken China’s trading relationship with Argentina, but to secure greater control over Argentina’s resources: lithium, oil and gas, and potential rare earth minerals. The inter-imperialist conflict between United States and Chinese imperialism is reverberating around all corners of the globe.

Bessent said it himself, when he justified the bailout with that argument that “what we’re doing is maintaining US strategic interest in the Western hemisphere.”

Trump is doubling down on Milei politically and economically as one of his only counterweights to China in the region. But this cannot alleviate any of the contradictions of Milei’s economic model of government intervention, constantly throwing billions of Central Bank dollars to the speculators on the peso, who carry the wealth of the nation off to their headquarters in New York and London.

In this context, Milei can do nothing right. No matter how many bones he throws to the capitalists, serious investments will not flow into Argentina in sufficient quantities to reverse the country’s long deindustrialisation, and the accompanying poverty, precarity, and lack of future that faces the working class.

This is because the world capitalist system is in a deep, organic crisis, a crisis of overproduction, where even the main industrial powers are facing serious underutilisation of industrial capacity. In these conditions, poor countries have no prospects beyond imperialist pilfering of their resources, and perpetual austerity for the working class.

Trump hopes this lifeline to Milei will prolong his stint in power, and stave off the return of a Peronist government, which may be more inclined to negotiate with China. Even so, the majority of the aid will only become available after the elections. Given that congress may look very different after the midterm elections on 26 October, Trump won’t place all his bets on the current political configuration. And the outcome of that election looks more uncertain every week.

Political Crisis

Milei’s election result on 26 October is looking increasingly bleak, as the government has been rocked by a series of scandals. Only days ago his leading candidate in the Province of Buenos Aires was forced to step down after it was revealed that he took at least $200,000 from a Patagonian businessman and that he flew dozens of times on his private jet. That businessman, Fred Machado, is now under arrest for charges of drug trafficking and is facing extradition to the US.

Not long before that, leaked audio messages showed that Milei’s sister and closest confidant, Karina, was taking bribes from pharmaceutical companies and keeping three percent from the drug contracts to the National Disability Agency. This played an important role in Milei’s defeat in the Buenos Aires provincial legislative elections in September.

This is all a serious blow against the government, which promised to be different and to smash the political caste, but which is being shown to be as corrupt and as riddled with capitalist sleaze as any other government. Milei, the right-wing demagogue, came to power on the basis of a no holds barred attack on the corruption and failures of the establishment capitalist politicians and their state. The masses are going through an important learning process as to whose interests Milei really represents.

These last cases have had a bigger political effect on Milei than the fraudulent $Libra cryptocoin launch that he was involved in last February. Corruption weighs more heavily on people’s minds the more they lose confidence in the new government to substantially improve their conditions.

The need for a revolutionary alternative

The economic crisis and the drop in consumption show no signs of letting up. Layoffs multiply day by day, and the conditions of the working class have reached a record low in recent history. The momentary jubilation of the markets only foreshadows the political explosions to come.

Milei’s government is bleeding its social base of support / Image: public domain

If in the October elections, a significant sector of the working class casts their votes for the Peronist candidates, those leaders will face a stark choice: prop up the government with their votes in parliament which would be politically damaging, or prepare to replace Milei through institutional mechanisms.

Seeing that Milei’s government is bleeding its social base of support, the imperialists fundamentally demand that Milei maintains governability to put through the counter-reforms they require. In the last instance, that may mean inviting part of the political opposition onto a sinking ship.

The fact that the opposition gathered the necessary two thirds of votes in congress to block Milei’s veto of funding bills that they passed for education and healthcare projects, something they failed to do previously, shows that they sense the weakness of the government, as well as pressure from below.

The massive demonstrations in the city of Buenos Aires and across the country in defence of education and healthcare, are initial displays of the enormous power of the working class. But this energy must be focused.

The leaders of the left parties must act like the revolutionary opposition to the system that they claim to be, rather than a merely parliamentary opposition to Milei, playing within the limits of bourgeois institutions. If they continue to misread the political situation and miss its revolutionary potential, they will only fall further out of step with the mood of the masses and continue to lose votes, as they have been doing in provincial and national elections.

What is required is to build class independence, on the basis of a programme which answers the pressing needs of the working class. Expressed through the organising of the working class in their workplaces, neighbourhoods, and schools, and ultimately, in the construction of a mass revolutionary party armed with Marxist theory. The working class must fight for its own interests with its own methods: strikes, marches, and factory occupations.

The failures of Peronist bourgeois nationalism, and right-wing alternatives, from Macri to Milei, will help the working class reach the necessary conclusions. The rise in non-voting and spoiling ballots to previously unseen levels is further evidence of the ripe conditions for the building of a revolutionary party. Building such a party is the only way to stop the attacks of the capitalists, which are guaranteed in the current system no matter which party governs.