Daniel Raisbeck is an independent policy analyst
What explains Javier Milei’s recent, aggressive stance against the Falkland Islands? He cites Argentina’s usual, anti-colonial historical grievances while denying the Falklanders the right of self-determination. He warns against the upcoming oil drilling projects in what he considers Argentine territorial waters. Also on his list are Britain’s decline and Donald Trump’s wavering on U.S. recognition for British sovereignty over the islands. But the underlying reason—which he does not mention— is Argentina’s high inflation rate.
In terms of monetary policy, Milei has not delivered on his 2023 presidential campaign promise to “eradicate” inflation in Argentina, which still has the second highest annual rate in the Americas—after Venezuela—at 34 per cent. Admittedly, this is a vast improvement over the triple-digit inflation levels Milei inherited from the last Peronist government. Still, Milei pledged to defeat inflation—broadly understood to mean bringing annual levels to single digits—within 18 to 24 months. That period has already passed since his December 2023 inauguration; Argentina’s inflation rate is still significantly higher than Haiti’s.
Milei said that he would shut down the central bank and dollarise the economy officially, a measure that nearly a third of Argentines supported by July 2023. Unofficially, of course, Argentina has been dollarised for years, with major purchases conducted and savings held—often hidden—overwhelmingly in U.S. dollars. Nor was the measure remotely as outlandish as opponents made it seem.
In the early 1990’s, former president Carlos Menem lowered inflation from four-digit levels to under 20 per cent in two years by implementing a currency-board-like-system, which fixed the peso to the dollar at a 1:1 basis. Foreign reserves upheld confidence in the scheme until central bank interference—which does not take place under an orthodox currency board— led to a loss of dollar-peso parity. The collapse of the so-called “convertibility” system quickly ensued in early 2002, after which the Peronist Kirchner family took power for over a decade.
Under the last Peronist president, Alberto Fernández, the central bank unleashed annual inflation levels above 200 per cent while accumulating $30 billion in short-term debt to commercial banks. It could pay bondholders only by issuing even more short-term debt. With liabilities twice as large as the monetary base itself, the central bank ignited a fiscal time bomb to prop up the Argentine peso. At the time, Milei said the peso was worth less than excrement.
The inflationary run benefitted Milei because he was the only prominent politician who had denied the need for a central bank in the first place, calling it “an institutional scam.” By contrast, the Peronists in government were using the central bank to monetize their large fiscal deficits. But the traditional, centre-right opposition, which had led the central bank from 2015 to 2019, could hardly claim to be more competent after doubling the inflation rate from 27 to 54 per cent. This despite their assurances of sound, sober monetary management.
Milei won a mandate to close the central bank and dollarise, but he did not do so despite favorable conditions. Contrary to critics’ claims, dollarisation requires neither approval from the U.S. Treasury, nor (unlike a currency board) a minimum of foreign reserves held by the central bank (Ecuador dollarised in 2000 unilaterally and with negative reserves). Nor is there a need to exchange the entirety of the circulating currency for dollars in a single day (see here for the mechanics of a dollarisation process). What Milei has lacked is the political will to dollarise.
Instead, Milei’s government has kept the peso, controlled the exchange rate—first through a crawling peg, then through a band system— and intervened aggressively in currency markets. In late 2025, as Milei’s party began to trail the Peronists in polls leading to a parliamentary election, markets punished the peso, driving it towards all-time lows against the dollar and the upper end of the band. It was then that the U.S. Treasury stepped in to bolster Milei’s desperate attempt to strengthen the peso, intervening in the currency market with a $20 billion currency swap mechanism. The deus ex machina helped Milei’s side win the election.
Now Milei’s government is approaching its three-year mark. As the presidential election looms in October 2027, the polls are—once again— not as sanguine as he once hoped. His ideal scenario is to win outright in the first round of voting, which requires winning either 45 per cent of the vote outright or 40 per cent with a 10-point advantage over the runner-up. Most polls, however, point to a contested election and a run-off between Milei and the Peronists.
The good news for Milei is that he is slightly ahead of his likely opponent, Peronist Buenos Aires province governor Axel Kicillof, in several—though not all— run-off scenarios. The bad news is that, at least according to one poll, his approval rating sits at a lowly 34 per cent, while 55 per cent of respondents disapprove of his leadership. Another poll suggests that 60 per cent of Argentines favour a change of government, even if this does not mean that the Peronists are the change they want to see. The 2027 election, then, looks like a toss-up.
Markets are responding to the uncertainty. The peso reached an all-time low against the dollar last July, having lost over 99 per cent of its value since the 2000’s. Clearly, the lion’s share of this devaluation took place under previous governments. But since Milei took over and devalued the official exchange from ARS $400 to $800 per dollar, bringing it to a level far closer to the de facto black-market rate, the peso has lost an additional 46 per cent of its value vis-à-vis the dollar. Milei has thus extended the peso’s status as the junk currency he once decried.
The Argentine stock market, which has performed phenomenally since 2022—with the proxy ARGT ETF posting a 170 per cent 5-year performance at the time of writing—has been muted of late. ARGT is up only 5 per cent in 2026 versus 12 per cent for the S&P 500; ETF’s for regional counterparts Colombia (COLO) and Brazil (EWZ), where the right has either already won a presidential election or has a chance to do so in the coming months, have posted returns of 40 and 19 per cent respectively this year. In fixed income markets, Argentine government bonds with long maturities still sell at a steep discount to par because of political risk, even if they have rebounded heavily since Milei came to office.
Investors are sceptical given the fragility of Milei’s reforms. As economist Nicolás Cachanosky wrote last month, the Peronists could overturn practically all his government’s sound policies quite easily—beginning with the lynchpin of fiscal discipline—if they return to power in 2027. Dollarisation, on the other hand, is the one structural reform that future leftist governments cannot undo, as witnessed in Ecuador under Chávez ally Rafael Correa. It is the ultimate preventive measure in the monetary sphere. Alas, Milei chose weak currency manipulation instead.
Polls further suggest that Argentines are mostly concerned about low wages, unemployment and inflation in that order. Pro-Milei commentators suggest this is a victory of sorts since inflation is no longer the top priority. But this overlooks Milei’s initial “blender” policy, whereby his government used high inflation to erode debt issued at relatively low interest rates. Inevitably, this diluted pensions and wages along with the debt. The ensuing recovery has not sufficed even if the blender is no longer the main mechanism to achieve budget surpluses. This is yet another consequence of Milei’s monetary regime, which was always likely to determine his destiny.
During his speech on the Falklands, Milei claimed that protecting the peso was a matter of national security, a far cry from his stance just three years ago. But Argentina’s economy would be in a stronger position today had he abolished the peso as he once promised. His failure to do so has left his legacy fully contingent on winning reelection. Hence Milei’s need to stir nationalist sympathies to stave off what he must feel is a serious Peronist challenge.
But Milei has only himself to blame for his current predicament. In the words of Juan de Palafox y Mendoza, a 17thcentury Spanish clergyman and viceroy: “a kingdom ruled by remedies and not preventive measures is on the road to ruin.”
Thank you! I hadn't followed Argentina of late so was unaware that Milei had apparently begun to run low on battery so to speak. Has courage failed? It's disappointing that having entered office as the great reformer, he is falling back on tedious orthodoxy by identifying a foreign foe.