Argentina President Javier Milei stepped back from an austerity-only policy line and pledged to expand social expenditure. Facing a political crisis after a recent rout in local elections and allegations of corruption involving a family member, he lowered his profile unusually ahead of the midterm elections in October, asking voters to "be patient."
According to the Financial Times (FT), Milei on the 15th (local time) unveiled the 2026 budget proposal, announcing plans to increase pension, education, and health budgets by 5%, 8%, and 17%, respectively, above the inflation rate. He said, "It took great effort to get here," and emphasized, "The road is rough, but the direction is right."
However, he reaffirmed a firm commitment to fiscal balance, making clear that he has not abandoned the austerity line itself.
The announcement contrasts with his previous moves repeatedly rejecting opposition-led bills in Congress to expand social expenditure. Milei won the presidency in 2023 on a "chainsaw reform" pledge to cut out Argentina's ills, earning more than 50% high approval with aggressive expenditure cuts. As he pushed welfare cuts, government restructuring, and deregulation, he is credited with lowering Argentine inflation from 289% in April 2024 to 34% in August this year.
However, as the recovery has recently slowed and even the economy as felt by ordinary people has worsened, fueling public discontent, Milei appears to have pulled the expenditure card to tamp it down.
In particular, analysts say the crushing defeat in the Buenos Aires provincial elections, where about 40% of Argentina's population lives, likely dealt a major blow to Milei. In elections held 4th, the ruling party took 33.71% of the vote, receiving a devastating report card that trailed the leftist Peronist coalition Fuerza Patria, which recorded 47.28%, by more than 13 percentage points. In the fallout, the Merval index, Argentina's main stock index, plunged 13.25% from the previous day, the peso exchange rate jumped more than 5% intraday, and Government Bonds prices fell more than 10%, underscoring the jittery mood.
Allegations that the president's younger sister, who also serves as chief of staff, took bribes also poured fuel on public anger. According to local media, last month the Argentine government asked pharmaceutical companies to provide 8% of contract sums as a rebate when purchasing public medical supplies for people with disabilities, and an audio recording was released alleging that Chief of Staff Karina Milei would take 3% of that amount.
Karina is the president's only younger sister and is regarded as a power broker who played a major role in making her brother president.
In the budget plan, Milei projects a primary fiscal surplus of 1.5% of gross domestic product (GDP) next year and a 0.3% surplus including liability interest. But that falls short of the 1.6% surplus target the government set in Apr. when it signed a $20 billion loan deal with the International Monetary Fund (IMF), and it is well below the IMF's medium-term target of 2.5%.
The shift in public sentiment also shows in approval ratings. Milei's approval fell by 8 percentage points in just one month between Jul. and Aug., dropping below 40% for the first time. Sheila Bilker, a director at polling firm TresPuntoZero, warned, "In the past, there was a widespread belief that if we held on, things would get better, but now that hope is starting to vanish."
However, it is uncertain whether the belated stopgap can overturn the midterm landscape. The ruling party must secure at least 40% of the vote in next month's midterms, and some believe the low turnout in this legislative election could work in Milei's favor.
Lucas Romero, head of the political consulting firm Synopsis, noted, "A strategy that touts fiscal balance as a cure-all will lose force if people do not feel it."