No, Argentina is not on life support

There's been a gleeful slew of commentary over the past week suggesting that Argentina under Javier Milei's libertarian administration has been a failed experiment. 

To wit, here's a quote from a commentator on a foreign NGO-funded propaganda site in South Africa:

The libertarian firebrand’s promise to hack away at the bloated Latin American state won him global notoriety and political power. But today his government is on life support, kept alive only by a last-minute foreign currency lifeline from Washington propping up the peso.

Here's what you need to know to make an informed decision as of today:

1. Argentina has made significant progress in stabilising macroeconomic imbalances since late 2023.
2. Recent volatility has been triggered by political uncertainty ahead of the October 26 midterm legislative elections.
3. Reforms have achieved a primary fiscal surplus for the first time in more than ten years.
4. These reforms have sharply reduced inflation, triggering a rebound from a 2024 recession.
5. The economy slowed in the second quarter of this year because of exchange rate pressures. This triggered a plummet in the stock market with accompanying capital flight.
6. Last month, there were provincial election losses for Milei's party.
7. The potential for congressional gridlock put on hold some of Milei's plans for further reforms in labour regulation and taxation,
8. This triggered a currency plunge, stock rout, and dollar outflows.
9. Argentina sold reserves aggressively to prop up the peso. That's a reasonable policy if one has sufficient USD reserves, but difficult for a country mired in debt from previous administrations.
10. The Trump administration in the US has announced a $20 billion currency swap (which is neither a handout nor a loan) to provide stability to the peso.

There's a lot hanging on the legislative elections next week — half of the seats in the Chamber of Deputies and a third of the seats in the Senate will be elected. Milei's reforms have prioritised fiscal discipline and inflation control which always comes at a high social cost. 

If these elections tilt in favour of the opposition, they will potentially gain veto power which will torpedo further structural changes needed for sustained investment. 

If Milei maintains control, projections are cautiously optimistic with IMF/World Bank projecting 4-5% GDP growth in 2025 and 4% in 2026 — assuming reform continuity, favourable harvests, and further investment in energy infrastructure. OECD sees a "strong recovery" trajectory if imbalances stay tamed.

The US currency swap will help rebuild reserves and avert devaluation, buying time through elections. Trump is correct to tie the currency swap to Milei's success in these elections. The opposition needs to know that looting of the $20 billion will not be allowed.