The challenge of reviewing the economic plan in an adverse political context

Economically, the government managed to meet the objective of the mandate given to it by society in 2023, that is, to lower inflation. However, it paid a high price . Not only in terms of activity but also in volatility, as seen especially in the last two months, since the dismantling of the LEFI (Financial Institutions for the Development of Financial Institutions), which caused a spike in interest rates. The program then stopped functioning as planned , and something similar will likely happen again with the dollar and this Wednesday's debt auction.

Most economists, including those at the International Monetary Fund itself, have recently argued that the model will require a recalibration of the program sooner rather than later , that is, a definition of exchange rate and monetary rules, as well as a reserve accumulation rule, to face the challenges ahead. After ending the restrictions and reaching an agreement with the IMF, the government has done little to genuinely generate foreign currency , and this indicates that, beyond the Vaca Muerta and RIGI projects, the Argentine economy's main net source of dollars is the agricultural sector, especially the soybean complex.

For the coming years, the Government will pursue economic policy based on two pillars.

First, President Javier Milei and Minister Luis Caputo both reaffirmed last night that fiscal balance will continue, perhaps the main anchor of the current model for stabilizing the economy.

Second, the current model isn't like Convertibility or a Table that makes you wonder what "the day after" will be like. A jump in the dollar, as the market expects, won't mean a breach of contract.

However, this step will not be without challenges . First, for Argentines, because a higher exchange rate will have an impact on the inflation rate. Second, for the President, because a surge in inflation will mean lower popularity and lower confidence in the government.

Until last night, it was unknown in what political context the economic team would recalibrate monetary and exchange rate (and reserve) policies, but now we know it will be in one that is adverse to the government . This will be a more difficult time for the government because it will have less capital and less opposition fragmentation to navigate not only the path to October but also until the end of its term in 2027.

It's difficult to imagine how the program can be recalibrated without the government's commitment to dialogue , especially given the challenges ahead that will require political agreements, such as the 2026 Budget proposal, but also maintaining a path of fiscal balance for the coming years. Just as thinking that simply lowering inflation would be enough to win over the electorate has also been a mistake, the strategy of polarization doesn't provide sufficient tools to navigate the remaining path, much less to implement economic policy in an adverse political context.