Brazil & Southern Cone - January 2026

Argentina’s President Javier Milei is leveraging his new-found majority in congress to push a host of free-market economic reforms but has also seen the limits of what he can achieve with his new legislative powers. Before the end of the year, Milei scored a double victory in congress with the approval of the 2026 budget and a ‘fiscal innocence law’, which is designed to encourage Argentines to deposit undeclared US dollar savings into the formal banking system, boosting central bank (BCRA) reserves. Both votes, held on the day after Christmas, came after the ruling far-right La Libertad Avanza (LLA) party increased its legislative presence as a result of October’s mid-term electoral result.

In 2024 and 2025 the Milei administration lacked a majority and had to rollover the previous year’s budget. This year’s financial guidelines reflect the government’s priority to downsize the Argentine state. According to Buenos Aires-based think Asociación Civil por la Igualdad y la Justicia (ACIJ), the 2026 budget is nearly 25% smaller than the 2023 congress-approved budget, when adjusted for inflation. It also stipulates a primary fiscal surplus of 1.5% of GDP, a target President Milei described as “a historic event”.

The second legislative victory was the ‘fiscal innocence law’, yet another effort to get Argentines to bring out some of the estimated US$254bn of ‘dollars under the mattress’ into the formal financial system by offering not to investigate possible tax evasion on most of their savings. It is the latest in a series of efforts by the Milei administration to tap into the large amounts of hard currency that Argentines have stashed away over the years to shield themselves from political and economic turmoil.

Even after two years of harsh austerity measures, there is still a severe shortage of dollars in Argentina, or at least, in public hands. That is now to change. Since 1 January, the government is allowing the peso to fluctuate more freely and has stepped up the purchase of US dollars to bolster its international reserves.

The currency band within which the peso is allowed to trade now widens in line with monthly inflation. Since April 2025 it had expanded by only 1%, even though inflation exceeded that rate every month and reached 2.5% in November.

The move marks a departure from the government’s previous strategy of pursuing a strong peso as a means to help anchor inflation. But the quickly gaining value of the peso was undermining demand for domestic consumer goods, stifling exports and making it expensive for foreign tourists.

In essence it is a second attempt to move toward a free currency market, one in which investors and consumers feel more confident that they can repurchase dollars at any time. The first failed when electoral uncertainty and public protests caused a run on the dollar and forced the government to tighten currency restrictions.

At the same time the Argentine central bank (BCRA) has said it expects to accumulate at least US$10bn in international reserves this year by buying more dollars. Net reserves were about US$13bn short of what was agreed with the International Monetary Fund (IMF) for December.

Setbacks

The government also experienced that being the largest force in congress does not mean that it gets its way. Earlier in December the lower chamber of congress rejected a section of the budget which would have cut spending on education and services for people with disabilities. A further sign that the Milei administration will continue to face pushback on politically sensitive issues came when it was forced to delay discussion of its labour reform in congress until February due to protests by unions. Opposition legislators had threatened to sink the bill altogether. But in a last-minute compromise, the government agreed to consider proposed amendments in exchange for delaying discussion in the plenary.