Argentina’s Political and Economic Turmoil Under Milei: Assessing Risks to Emerging Market Investments in Latin America

Argentina’s economic and political landscape under President Javier Milei has become a focal point for emerging market investors, given its potential to amplify regional risks and reshape investment dynamics in Latin America. Since assuming office in late 2023, Milei’s administration has pursued aggressive austerity measures, fiscal consolidation, and structural reforms aimed at curbing hyperinflation and stabilizing the peso. However, these policies have triggered significant social unrest, political instability, and currency volatility, raising concerns about their spillover effects on neighboring economies and investor sentiment across the region.

Argentina’s Internal Challenges: A Double-Edged Sword

Milei’s economic strategy has prioritized fiscal discipline, with the government achieving a fiscal surplus for the first time since 2008 by mid-2024. This was accomplished through drastic cuts to public spending, including the dismantling of social programs like Social Monotributo and Potenciar Trabajo, which left millions of informal workers without access to healthcare or pensions [3]. While these measures contributed to a sharp reduction in inflation—from 211% in November 2023 to 2.4% in February 2025 [1]—they also exacerbated poverty, with 38% of the population still living in poverty as of mid-2025 [4].

The administration’s reliance on interest rate hikes (now exceeding 70%) and currency controls has further strained the economy. The Central Bank of Argentina (BCRA) has intervened heavily in foreign exchange markets to manage the peso’s depreciation, but this has limited access to hard currency for businesses and households. As a result, the parallel exchange rate gap narrowed to 27% by September 2024, down from 158% in late 2019 [1], yet the peso remains volatile, with a 2.86% drop in the MERVAL index in early 2025 amid fears of regional trade shocks [5].

Political instability has compounded these challenges. Milei’s party, La Libertad Avanza, suffered a significant defeat in the Buenos Aires provincial election in mid-2025, losing to the Peronist opposition by nearly 14 percentage points [4]. This electoral setback has weakened the administration’s legislative agenda and raised questions about its ability to sustain reforms ahead of October midterms. Analysts warn that without political realignment, Argentina risks prolonged financial instability and a potential disorderly currency adjustment [5].

Regional Spillover Effects: Trade, Investor Sentiment, and Geopolitical Shifts

Argentina’s turmoil has reverberated across Latin America, influencing trade dynamics, investor sentiment, and geopolitical alignments. The Trump administration’s imposition of 50% tariffs on Brazilian steel and aluminum exports in early 2025, for instance, indirectly affected Argentina by reducing demand for Argentine goods, as Brazil is a key regional trade partner [5]. This highlights how political trade shocks in one country can rapidly evolve into systemic regional crises.

Investor sentiment in Latin America has also been shaped by Argentina’s experience. While the country’s economic reforms have attracted some optimism—reflected in a decline in Argentina’s country risk rating to levels not seen since 2018 [1]—regional FDI flows remain constrained. In 2024, Latin America and the Caribbean saw a 12% decline in foreign direct investment (FDI), with Argentina recording a 62% drop in FDI inflows to USD 2,385 million in Q2 2024 [2]. This decline is attributed to Argentina’s economic volatility, currency controls, and social unrest, which have deterred foreign capital despite the government’s RIGI (Reactivation and Growth Investment Incentive) program offering tax concessions for large-scale investments in energy and mining [2].

Geopolitical realignments further complicate the picture. Milei’s shift toward U.S. economic policies and skepticism toward BRICS membership has isolated Argentina diplomatically, contrasting with regional trends toward multilateral cooperation. This recalibration could reinforce U.S. influence in Latin America but may also fragment regional economic partnerships, complicating investment flows and trade agreements [5].

Comparative Risks in Latin America: Argentina vs. Regional Peers

Argentina’s economic trajectory contrasts sharply with that of its neighbors. While the country is projected to grow by 5.5% in 2025 [1], driven by energy investments and agro-industrial recovery, regional peers like Brazil and Chile face slower growth due to fiscal constraints and U.S. tariffs. The World Bank forecasts Latin America’s GDP to expand by 2.5% in 2025, with Argentina’s performance outpacing the regional average [3]. However, this divergence masks structural vulnerabilities, such as Argentina’s stagnant labor productivity and high public debt-to-GDP ratio (110.5% in Q2 2024) [1].

Implications for Emerging Market Investors

For investors, Argentina’s experience underscores the complex trade-offs between short-term stabilization and long-term growth. While Milei’s reforms have reduced inflation and stabilized the fiscal deficit, they have also heightened social tensions and political uncertainty. The government’s reliance on IMF support—having secured a USD 12 billion disbursement under an Extended Fund Facility—provides temporary relief but does not address deeper structural issues like labor market inefficiencies or public sector rigidities [1].

Regionally, Argentina’s turmoil highlights the fragility of economic governance in Latin America. As the OECD notes, institutional weaknesses and underdeveloped regulatory frameworks in emerging markets amplify susceptibility to external shocks [1]. Investors must weigh Argentina’s potential as a resource-rich economy against its political instability and the risk of policy reversals.

Conclusion

Argentina’s political and economic turmoil under Milei presents both opportunities and risks for emerging market investments in Latin America. While the country’s stabilization efforts have attracted some optimism, the path to sustainable growth remains fraught with challenges. For investors, the key lies in balancing short-term gains with long-term resilience, recognizing that Argentina’s experience is emblematic of broader regional struggles with inequality, institutional fragility, and geopolitical realignments.

Source:
[1] Argentina Overview: Development news, research, data [https://www.worldbank.org/en/country/argentina/overview]
[2] Argentina 2025: Steering through transformation with cautious optimism [https://www.financialexpress.com/opinion/argentina-2025-steering-through-transformation-with-cautious-optimism/3754359/]
[3] World Bank Forecasts Argentina to Lead Latin America [https://latamfdi.com/argentina-to-lead-latin-america/]
[4] “There will be a post-Milei Argentina – and the EU must be ready for it” [https://eu.boell.org/en/2025/05/21/there-will-be-post-milei-argentina-and-eu-must-be-ready-it]
[5] Regional Contagion Accelerates: Strivon Capital Management's Multi-Market Crisis Assessment [https://medium.com/@Strivon_Capital_Management/regional-contagion-accelerates-strivon-capital-managements-multi-market-crisis-assessment-as-61a9fa2cf961]