Austral Insights - Special Edition

Hi everyone,

You may have noticed that I didn’t send Austral Insights last Friday. I apologise for that. With some new projects underway, I simply couldn’t find the time to put it together properly. My biggest regret is that I wasn’t able to give you a preview of what might unfold in Sunday’s Buenos Aires Province legislative elections. That said, like most analysts, I would never have predicted such a sweeping Peronist victory.

So, let’s dive straight into what came out of that overwhelming result. The Peronist front Fuerza Patria, led by Buenos Aires Governor Axel Kicillof, secured a landslide win with 47% of the vote, compared to Milei’s La Libertad Avanza with 33%. No other party broke the 5% mark, underscoring the stark polarisation between the two blocs.

What happened and why it matters.

Some colleagues and clients I spoke to in recent weeks had asked how can provincial midterms be that important. It’s a fair question. Why should elections for provincial representatives and senators carry such weight politically, and even economically?

The answer lies in a familiar phrase you’ll hear from analysts all over Argentine TV: “Buenos Aires Province is the mother of all battles.” With about 40% of the national electorate, the province’s sheer scale gives its results undeniable political weight.

President Milei himself helped “nationalise” the race by actively participating in the campaign, acknowleding its importance for the admnistration. He even called it the opportunity to “put the last nail in the Peronist coffin.”

Even after the defeat, he didn’t downplay the loss by saying it was “just provincial.” Instead, he acknowledged mistakes and called for corrections ahead of October’s national midterms, where Congress will be reshaped, and which according to one of Argentina’s most lucid political analysts Ignacio Labaqui “will be the true mother of all battles”.

Immediate effects: market reaction

Despite conceding defeat, Milei’s closing message was directed at markets: the economic programme will not change. This was a clear—some might say desperate—attempt to reassure investors and head off a feared Monday sell-off.

But markets look forward, not back. A Peronist landslide in Buenos Aires signalled to investors that society may be tiring of Milei’s austerity programme, and that Peronism could rebound sooner than expected. The reaction was sharp:

• The peso slid from ARS 1,386/USD on Friday to ARS 1,425/USD on Monday.

• Argentine ADRs in New York fell as much as 24%, and the S&P Merval dropped 16%.

• The country risk index spiked to 1,100 bps.

Numbers speak for themselves: a provincial election rattled Wall Street. Milei was right to fear Monday’s opening. Now, his administration must calm volatility heading into October.

And now, what?

On Monday, presidential spokesman Manuel Adorni announced the creation of a “mesa política” (political council) made up of the President, Karina Milei, Chief of Staff Guillermo Francos, presidential advisor Santiago Caputo, Security Minister Patricia Bullrich, and Congress leader Martín Menem and Adorni himself.

The problem? These figures were already at the core of Milei’s power structure. To many, this looked like an empty gesture—formalising what Milei used to call the “iron triangle” of himself, Karina, and Santiago Caputo, while trying to defuse tensions between the last two. These tensions were made worse by recent public scandals, especially leaked audios implicating Karina in alleged corruption at the National Disability Agency.

The government has also signalled a willingness to finally convene a broader table with provincial governors, after months of bitter clashes. But the big question is whether governors will trust a president who largely ignored them—now that he’s at his weakest.

Still, politics is only part of the story. As Argentines often say, “la gente vota con el bolsillo”—people vote with their pockets—the local equivalent of “it’s the economy, stupid.”. The discontent over contracting economic activity and shrinking purchasing power may explain the result more than corruption scandals or political infighting. The Universidad Di Tella Consumer Confidence Index fell sharply in August, reflecting fading optimism. The “hope premium” that was once Milei’s biggest asset is quickly evaporating.

Axel Kicillof: the big winner

Governor Kicillof emerged not just as the clear victor, but now as top opposition leader heading into 2027. More importantly, he seems to have finally consolidated his role as a national Peronist leader.

This is remarkable given the rift he had with Cristina Kirchner over the decision to decouple Buenos Aires’ election from the national midterms (see CFK’s X post below from April 14, 2025). Her faction fiercely attacked him during the campaign. But voters in the province vindicated his strategy, cementing his leadership.

However, Kicillof faces two risks if he wants the presidency in 2027:

• Entering the ring too early. Like Horacio Rodríguez Larreta, who rose during Covid only to reach 2023 politically exhausted, Kicillof could suffer attrition if he spends two years as Milei’s main target while still governing Buenos Aires, a province fraught with crises.

• Balancing the centre and his base. To win nationally, he must reach centrist voters. But if he tilts too far toward moderation, he risks alienating his Peronist base, particularly the faction led by Cristina’s son Máximo Kirchner. Just as Larreta was outflanked by Patricia Bullrich in 2023.

So, what to expect?

For Milei, October’s midterms are critical. He needs to:

1. Send a strong signal to markets, showing political strength to secure investment.

2. Win enough seats to build a legislative shield, protecting his decrees and reforms.

But to do that, he must first reconnect with society. A negative October result could devastate his project. His challenge now is to rekindle the charisma that made him stand out in 2023—to convince Argentines once again that he won’t let them down.

Are you interested in the risks and opportunities that Argentina presents? Is there an issue you’d like to discuss or understand in greater depth? Reach out for a free 30-minute talk at [email protected].

See you next week with more insights!