Argentina

Argentina's external perception has transformed. All three major rating agencies upgraded the sovereign in 2026 (S&P to B-) and IMF Managing Director Kristalina Georgieva declared during her July visit to Buenos Aires – the first by an IMF head in eight years – that Argentina "may be on a good track to join the club of emerging markets that have borrowed from the Fund, reformed their economies and borrowed no more". Bond prices have risen, spreads have compressed and the BCRA met its dollar accumulation target of USD10.1bn in H1 2026.

Yet beneath this improving external narrative, financing vulnerabilities persist. The sovereign faces a critical inflection: IMF principal repayments begin in September 2026, and broader FX debt obligations rise sharply in 2027. Economy Minister Caputo has indicated the government will cover payments through multilateral lending, privatization proceeds and domestic borrowing rather than returning to international capital markets – an approach that avoids spread risk but increases domestic crowding-out pressure.

The consumer credit picture is deteriorating at pace. Household loan delinquencies surged to a 15-year high of nearly 13% by May 2026, up from just 2.8% when Milei took office. At non-bank lenders and fintech platforms – which serve the most financially vulnerable segments – default rates exceed 32%. Small businesses are filing for bankruptcy at record rates, reflecting the squeeze between subsidy removal, utility cost increases and stagnant domestic demand. The banking sector remains nominally stable, but the credit cycle is turning: loan growth will slow, provisioning will rise and profitability will come under pressure if delinquency trends do not stabilize.

Corporate insolvencies remain elevated in FX-exposed and domestic-facing sectors (agrifood, construction, transport), though the energy and mining segments continue to attract fresh capital. The overall insolvency trajectory is one of normalization at elevated levels rather than systemic crisis – provided the exchange rate band holds and IMF program compliance is maintained.

Argentina's structural reform agenda has advanced further under Milei than under any administration in decades, but implementation depth remains uneven and durability is uncertain. The RIGI regime (Incentive Regime for Large Investments) has attracted significant commitments – most notably YPF's USD25bn application for the LLL Oil project in Vaca Muerta – and the broader energy sector is scaling at pace, with national output approaching 1mn bpd and LNG export infrastructure in early-stage development.

However, the reform dividend has yet to reach the broader economy. High informality (affecting ~40% of workers), regulatory complexity, skills mismatches and institutional memory of policy reversals continue to weigh on private sector confidence outside the resource sector. The "two-speed" dynamic is not merely cyclical: it reflects a structural gap between globally integrated export enclaves and a domestic economy that remains hampered by low productivity, weak credit penetration and inadequate infrastructure.

The IMF's assessment is clear: continued progress requires deepening reforms in areas including construction (permitting and financing), SME credit access, mortgage market development and reduction of informal employment. These are precisely the areas where reform is most politically costly and where the current administration's libertarian approach, focused on deregulation and fiscal consolidation, faces its sharpest trade-offs with social cohesion.

Milei consolidated his position in the October 2025 midterms, with La Libertad Avanza winning 64 of 127 contested seats in the Chamber of Deputies (bringing his total to 95) and expanding from six to 21 Senate seats. This gives the government a working minority capable of sustaining presidential vetoes, though not an outright legislative majority. The reform agenda gained legislative breathing room, but not the supermajority needed for deeper structural changes.

The victory came at a cost. Markets initially sold off sharply (peso -5%, equities -15%) after Peronist candidate Kicillof won Buenos Aires province overwhelmingly (47% vs 33%), signaling that opposition is consolidating in the country's most populous district. The US-conditioned USD20bn currency swap – with Trump explicitly tying support to Milei's electoral performance – averted a larger crisis but exposed the fragility of the external confidence framework.

The critical political risk for the investment horizon is reform continuity. Despite improving macro headlines, Milei's approval ratings have declined as austerity policies coincide with stagnant wages, rising household debt and modest unemployment increases. The 2027 presidential election is already casting a shadow: if economic conditions do not visibly improve for the median voter, the risk of a policy reversal under a successor administration (or forced policy loosening ahead of the vote) cannot be discounted. Georgieva herself acknowledged that "these risks are best managed by building strong policies during the time we have now."

The external relationship with Washington provides a powerful but conditional anchor. US support (IMF access, currency swap, trade alignment) hinges on continued reform compliance and political alignment – neither of which is guaranteed beyond the current administration. Relations with Mercosur remain strained, while Chinese investment in infrastructure and energy adds geopolitical complexity that may eventually test the US relationship.