Markets on guard: Political pressure threatens the fiscal surplus and hits the national government hard.

The Argentine economy has once again entered a period of turbulence. Despite Javier Milei 's announcement of a new veto of spending increase bills approved by Congress , the markets didn't respond with euphoria , as they did in July of last year, when he blocked the pension increase and stocks soared. This time, the opposite occurred: sharp drops in Argentine stocks listed on Wall Street, declining bond prices, and rising exchange rate volatility set off alarm bells.

Analysts don't see a single factor, but they do see a clear message: political risk has returned to the forefront. Not only because of the electoral uncertainty in the third quarter, but also because of Congress's offensive with five bills that have a significant fiscal impact . Three have already become law, and two more are advancing in the House of Representatives. If all are approved, the cost would climb to 1.5% of GDP in 2025 and 2.5% in 2026. This blow would jeopardize Milei's main objective: the fiscal surplus.

In this context, Argentine assets have deepened their negative trend: stocks have fallen more than 40% in dollar terms so far this year, contrary to other emerging economies. The signal for investors is worrying: the political commitment to balancing public finances appears to be cracking.

A report by the consulting firm Empiria , led by former minister Hernán Lacunza , warned that this legislative offensive jeopardizes the 1.6% primary surplus projected by the Executive Branch. " It constitutes a challenge to the backbone of the economic framework ," they warned. And the governors' explicit support for the measures only reinforces that concern.

The situation is worsened by the shift in stance across much of the political spectrum. Many governors who previously supported the government are now pushing for more funding for their provinces. Even some allies in the Casa Rosada (Presidential Palace) voted in favor of bills that increase spending . These initiatives include improvements to pensions, disability benefits, and moratoriums, along with a new distribution scheme for National Treasury contributions and revenue sharing for fuel taxes.

The government warns that the attack is not only economic. It's also symbolic. They believe it's an attempt to demolish the cultural battle that Milei had considered won: the political consensus around the need for fiscal balance. " The opposition doesn't care about the deficit because they don't pay for it. We all pay for it ," they repeat in official offices.

One of the most contentious issues is the disability law, which could be the first to achieve the two-thirds vote needed in both chambers to override the presidential veto. It represents an additional expenditure of 0.4% of GDP this year and 0.7% in 2026. In contrast, the government believes it has a chance of overturning the pension veto (the most costly) and the pension moratorium.

The political pressure is occurring in a delicate economic context. July began with a new wave of dollarization: the official exchange rate soared to $1.275, and the parallel rate reached $1.300. Despite the Treasury's purchases of $400 million last month, the trend appears to be consolidating.

The BCRA also intervened in the futures market to control end-of-month prices. But analysts warn that grain sales will decline sharply starting July 21, no longer incentivized by low withholding taxes. A dangerous combination is then expected: less foreign currency supply and more demand, typical of an election quarter.

The market perceives that the exchange rate readjustment is not yet complete. And this expectation directly influences investor sentiment.

At Balcarce 50, they believe the key to regaining confidence will be to keep inflation between 1.5% and 2% monthly, reach October in order, and secure an electoral victory that allays fears. In Milei's own words, the goal is for "La Libertad Avanza" to win again.

But investors' memories are both fragile and precise. Many bitterly recall the enthusiasm for Mauricio Macri in 2017 and the subsequent debacle. They are unwilling to repeat the mistake. They want to see results and certainty. That's why they are now closely monitoring whether the fiscal balance is truly sustainable, or if everything depends on a slim legislative majority subject to the mood of the governors.

In this regard, a report by the provincial leaders themselves downplays the cost of their projects: they claim that the impact of the ATNs would be just 0.08% of GDP between August and December . But for the market, the symbolic value weighs as much as the accounting value: any sign of fiscal weakening can detonate confidence.