Argentina's ruling coalition, La Libertad Avanza (LLA), led by President Javier Milei, secured 40.8% of the votes in the midterm elections, winning half of the contested seats in the Chamber of Deputies. This result will help Milei's government easily control one-third of the Chamber—a critical threshold to block opposition bills and uphold presidential decrees.

The victory triggered a rally in Argentina's stocks, bonds, and currency on Monday. Markets anticipate that the election outcome will accelerate Milei's fiscal austerity measures and free-market reforms, addressing the country's long-standing issues of high inflation and economic stagnation. Additionally, the results are seen as ensuring the continuation of U.S. financial aid to Argentina. Previously, U.S. President Donald Trump had explicitly tied economic assistance to the election outcome.

**Surge in Argentine Assets** On Monday, Argentine assets soared across the board. Dollar-denominated bonds rose by 7 to 13 cents, with the 2038 maturity bond jumping 13 cents to 73 cents—approaching its earlier yearly peak. The benchmark MERVAL index surged 22%, marking its biggest single-day gain since late November 2023. The peso initially strengthened nearly 15% to 1,300 against the dollar before paring gains to close 4.3% higher at 1,430.

Argentine-linked stocks in the U.S. also rallied sharply. Banco BBVA (BBAR.US) soared over 36%, Grupo Financiero Galicia (GGAL.US) leaped 35%, Grupo Supervielle (SUPV.US) climbed 31%, Banco Macro (BMA.US) surged 35%, and the Global X MSCI Argentina ETF gained 19%.

Milei's LLA had suffered a worse-than-expected defeat in Buenos Aires' provincial elections last month, leading to volatile asset swings. As of last Friday, Argentine dollar bonds were among the worst-performing emerging-market high-yield debt this year. Since partial forex controls were lifted in mid-April, the peso had depreciated about 25% against the dollar, with a year-to-date drop nearing 30%.

Thierry Larose, a portfolio manager at Vontobel, noted, "Milei's victory was far stronger than expected. Previously, he was barely holding onto governance, but now he’s in a much stronger position to form tactical alliances and push through previously unattainable reforms."

**Dollarization Pressures Ease** Given Argentina’s history of hyperinflation and currency devaluation, savers traditionally sought refuge in dollar assets before elections. Next year, Argentina must repay about $18 billion in foreign debt, including $4 billion due in January. After struggling to curb dollarization, the central bank’s net reserves remain deeply negative, excluding IMF loans.

Carmen Altenkirch, an emerging markets sovereign analyst at Aviva Investors, added, "Given the scale of this surprise victory, peso depreciation pressures have clearly eased. Locals who hoarded dollars as a hedge may now start selling them, giving the central bank room to rebuild reserves. A weaker result would have led to further peso declines."

**U.S. Aid and Reform Momentum** The win is expected to speed up Milei’s reforms and secure continued U.S. financial support, boosting Argentine assets. Since taking office, Milei has pursued radical "chainsaw reforms," including free-market policies, deregulation, and privatization. For instance, scrapping import licenses slashed appliance prices by 35%, while ending rent controls cut Buenos Aires apartment rents by nearly 50%.

These measures—such as axing nine ministries, freezing wages and pensions, and cutting energy subsidies—reduced annual inflation from 25.5% to 2.7%. However, they also sparked backlash, contributing to earlier electoral setbacks.

In early October, the U.S. Treasury agreed to a $20 billion currency swap and a potential $20 billion loan package, directly buying pesos to bolster Milei’s campaign. U.S. Treasury Secretary Scott Bessent reiterated support on Monday, stating, "We look forward to Milei’s continued steps toward economic freedom, private investment, and job creation for Argentine prosperity."

**Next Steps: Forex Reform and Investment** As part of inflation-fighting efforts, Milei had previously propped up the peso. But investors expect inevitable forex policy changes.

Matthew Graves, an emerging markets debt portfolio manager at PPM America, said, "Monday’s peso rally was justified, especially with U.S. backing. Argentina now has breathing room to transition toward a managed float, paving the way for full forex liberalization. Investors will watch how this aids reserve rebuilding."

Alejandro Werner, who oversaw the IMF’s $57 billion 2018 bailout, added that Milei must float the peso, pass budgets, and secure new funding to refinance $17 billion in 2024 debt. "Now is the right time for a free float," he said.

Analysts believe the election outcome will encourage more foreign investment. Graham Stock, senior sovereign strategist at RBC BlueBay, noted, "The results offer a longer-term outlook for Argentine financial and real assets."

However, some remain cautious. Daniel Lansberg Rodriguez of Aurora Macro Strategies warned that while Milei has political capital, "delivering reforms requires sustained will, coalition management, and tolerance for short-term pain—something few Argentine leaders endure."

In a TV interview, Milei said he "absolutely" needs provincial governors’ support to pass tax cuts and labor reforms. Carlos Malamud, a Latin America expert at Real Instituto Elcano, called this a crossroads: "If he gets reforms right, he could win re-election in 2027. But if arrogance prevails, Argentina faces another political failure."