BACK IN B
More good news for Milei, who still has hills to climb ahead of next year's election.
Moody’s raised Argentina’s sovereign debt rating to B3 with a positive outlook this week, making it the third agency after Fitch and Standard & Poor’s issued similar upgrades into the B range but with stable outlooks in May and June, respectively. This puts Argentina out of the highly distressed category after years of struggling at the bottom of the scale, and marks a consensus that as a result of President Javier Milei’s radical reforms, “macroeconomic stabilization has advanced beyond the initial adjustment phase into a more durable improvement in credit fundamentals,” as Moody’s said in its statement on Tuesday.
What is underneath?
The move back up to B categories brings Argentina to territory it achieved after the government of President Mauricio Macri in 2016 settled the absurdly long and dragged out conflict between Nestor and Cristina Kirchner and holdout bondholders from the colossal 2001 default. That marked the country’s return to the capital markets, which then ended in the 2019 financial crash after Macri did poorly in the presidential jungle primary against the Peronist ticket with Cristina as Vice President. He went on to lose re-election in a landslide and Argentina plunged even further into the financial and debt-risk muck. Markets closed up again.
It was not the stroke of a pen in a legal battle that got Argentina here this time, but a systematic consolidation of fiscal discipline, better reserves accumulation and macro stabilization that the three credit agencies have lauded:
Fiscal Surpluses: The government’s shift from chronic primary fiscal deficits to consistent fiscal surpluses was the cornerstone of the three upgrades.
Accumulation of Dollar Reserves: Moody’s highlighted that Argentina’s Central Bank accumulated over $11 billion in foreign exchange through mid-2026 without creating exchange rate volatility.
2026 Budget Commitments: Fitch and S&P cited the implementation of Milei’s national budget being centered on retaining a zero-deficit anchor without relying on Central Bank monetary largesse.
Rapid Inflation Reduction: Agencies noted the huge slowdown in annualized consumer inflation from over 207% in 2024 down to 31%–32% in the period of 2025/2026.
Reduced Foreign Exchange Pass-Through: S&P emphasized that monetary policy credibility had improved, as exchange rate movements no longer trigger immediate hyperinflationary price spikes.
Transition to Net Energy Exporter: Fitch and Moody’s noted structural growth in non-agricultural exports—particularly from the Vaca Muerta shale formation and expanding mining investments—which drove record trade surpluses, including US$5.5 billion in the first quarter of this year.
Local Debt Rollovers: S&P noted easing credit vulnerabilities, citing high debt rollover rates (frequently exceeding 120%) in local currency bond auctions.
Reduced Default Risk: Agencies concluded that lower debt-servicing risks on commercial foreign currency debt due in 2026 and 2027 is letting Argentina to exit immediate default territory.
Legislative Progress: Agencies pointed to legislative achievements—such as labor market deregulation, tax reforms, and incentives for large investments (RIGI)—which improved the long-term investment climate.
Less Uncertainty in Policy Outcomes: Moody’s noted greater political consolidation in Congress after last year’s midterm legislative elections lowered the political volatility and made policy outcomes more steadily predictable. One could wager, however, that if Milei’s politically toxic former cabinet chief Manuel Adorni were still in office - an harmful episode that dragged on far too long — this would not have been as good a mark as it is.
On balance, these are remarkable achievements for Milei and his economic and finance team, and for the coalitions he cobbled together to get the key legislative and regulatory policies in place since he took office. It has not been an easy effort for anyone to get back here, especially those affected by unemployment and wages still not outpacing reduced inflation rates.
Despite the upgrades, the foreign debt markets still demand yields that are too high for Milei’s team to issue new international bonds, in the range of 12.5% or more. That means the country will still have to rely on a combination of local debt issuance and multilateral and bilateral loans and credit lines to confront much of the foreign debt maturity schedule for 2027 that totals about US$27 billion, one third of which is with commercial bondholders. Milei has to hold on to as much of the growing Central Bank reserves as he can to safeguard against external shocks that could trigger bursts of capital flight and threaten the managed exchange rate bands that have held steady.
A key shortcoming is that Milei has not yet been able to see the definitive light at the end of the tunnel for capital controls. Wall Street investment banks like J.P. Morgan, Bank of America, Goldman Sachs, and Morgan Stanley along with private market analysts agree that the dismantling of Argentina’s capital controls will follow a staged, phased process ending sometime in 2027. Major Argentine consultancies are not as optimistic, pointing out that any eradication of capital controls depends on much more robust accumulation of Central Bank reserves that they don’t all foresee being achieved by next year.
Also, multinational firms operating in Argentina hold billions of dollars in trapped legacy profits and dividends accumulated over years of the existing controls. That leads many to fear a fundamental reserve mismatch. If capital controls are fully removed, corporate demand for dollar repatriation could quickly overwhelm the BCRA’s net reserve buffer, triggering a sharp currency run and forcing another emergency devaluation.
And they add the peso is already overvalued. Using crawling exchange rate bands as a nominal anchor has successfully driven inflation down, but domestic inflation has consistently outpaced the rate of nominal currency depreciation. The overvalued peso makes non-energy exports like agricultural commodities and manufactured products uncompetitive and inflates import demand. Removing capital controls with an overvalued currency puts pressure on either capital flight or dollar hoarding before a correction occurs.
Until Milei finds a way to address these concerns and fluff up Argentina’s genuine liquidity buffers, political risks around next year’s elections begin creeping up again. A less-than-glowing set of first results could precipitate familiar setbacks and possibly tank the stable/positive outlooks.
Our take:
How do you, then, lower political risks in an election year to stave off a new panic run on the dollar? I would argue that Milei look more sharply at growth and job creation rates. When they are lagging too heavily, incumbents get blowback. To some extent, Milei has to get to work on framing the recovery more accurately and/or more favorably.
After suffering a sharp recession in 2024, Argentina’s economy entered a recovery phase in 2025 (+4.4% GDP growth) and has continued to expand in 2026, but not as fast as the International Monetary Fund’s (IMF) highly optimistic initial forecasts.
While energy, mining, and agriculture are experiencing robust growth, domestic job creation remains an important structural challenge. The ratings agencies claim a spike in informal labor from 42.5% in all of 2025 to over 44% in the first quarter of this year while unemployment rose slightly to 7.8%. The “informal” label, however, carries a 20th-century stigma that fails to capture modern economic realities, many of which Milei himself implemented reforms to help usher in.
Driving for a delivery app, freelancing online for foreign clients, or working in the platform economy is genuine, productive work. It generates real income, satisfies market demand, and lifts consumer spending in Argentina. Dismissing it as a lesser form of labor misses how millions of people actually build their livelihoods today in countries like Argentina. Instead of treating gig work as an economic sin, modern policy discussions increasingly focus on how to modernize labor frameworks so these workers can more easily build credit, access healthcare, and save for retirement without losing the flexibility they value. Today they shoulder 100% of their operational risks.
Milei sees gig work, freelancing, and self-employment not as informal labor to be eradicated, but as the future of a flexible market economy. Rather than forcing app drivers, digital freelancers, and independent contractors into traditional 1940s-style collective bargaining agreements, Milei’s legal and fiscal packages—mainly the omnibus Bases Law and labor deregulation measures—formally legalize and incentivize these flexible working options. He overhauled the simplified flat-tax regime for the self-employed by significantly raising the income thresholds for each tax category. High inflation used to push modest freelancers into more complex and punitive tax regimes but the expanded caps allow gig workers, tradespeople, and consultants to earn a lot more legally while paying a single, predictable monthly flat tax covering income tax, state pensions, and basic healthcare.
Freelancers can now legally deposit U.S. dollars directly into local Argentine bank accounts up to higher annual limits without being forced to convert their earnings into pesos at discounted official exchange rates. The latter was a punishing legacy of Peronism that impoverished the more talented self-employed and drove evasion and emigration up. Those days are starting to fade in the rear view mirror.
Milei needs to politically mobilize this sector of the workforce that analysts too often discredit, and speak to them and other aspirants around them as voters next year. Young workers, ride-share drivers, delivery riders, digital freelancers and micro-entrepreneurs turned out for Milei’s party in last year’s midterms. They have to be part of his narrative of success.
Under Milei, the sectors that have seen strong job creation and real wage increases have been in tech, oil and gas, lithium mining, and specialized logistics attached to them. But this is not a big enough slice of Argentina’s labor market to yield reliable political support. Retail and construction are still where many of the jobs have not come back. The latter has no clear path to resuming growth so long as Milei’s austerity reforms remain in place — as they must if the fundamentals are to hold. For retail, it’s unclear how Milei can drive up consumer retail demand without wages and purchasing power rising more broadly and consistently.
Reframing the narrative of the recovery is where Milei will probably win or lose the political expectations game in next year’s election. If he falls short of expectations in the first round, there could be a financial shock like there was in 2019 if other conditions are also in place. The Peronist alternatives - particularly the governor of Buenos Aires province, Axel Kicillof - are right out of central casting for provoking a run on the dollar and an evaporation of in-country liquidity overnight. For that reason, I can’t imagine Milei fully eliminating capital controls before the election. He will need them as a necessary tool to stave off attacks on the overvalued peso without wiping out the Central Bank reserves.
He has more than a year to get the reframing in place and make it visible, believable and resonant with enough of the Argentine public. No matter what the statistics say, or how analysts in Washington or New York define “informality”, all that matters is how the Argentine people feel about the recovery and how confident they are that it will keep going and getting better in 2028.