Milei's 2027 budget defies global turmoil as exports surge, poverty looms

Oil pushed past $107 a barrel on Tuesday, the yield on the U.S. 10-year Treasury brushed 5.04% — its highest level since 2007 — and the Federal Reserve is hours away from raising rates for the first time in months: that is the backdrop against which Javier Milei's government today unveiled its 2027 Budget, a document projecting 4% growth, 18% end-to-end inflation and four consecutive years of financial surplus, but which arrives in Congress just as Argentina's country risk climbs back above 500 basis points. The simultaneity is no accident: Argentina never quite manages to decouple from the global financial cycle, and the moment chosen to display its fiscal ambitions coincides precisely with one of the most turbulent weeks of the year in international markets.

The bill, whose formal presentation was handled by Luis Caputo's ministry, sets an average wholesale dollar of $1,728 for 2027 and $1,847.6 by December of next year, implying a nominal variation of around 15%, below projected inflation. In other words, the peso would continue to appreciate in real terms — a bet the market views with skepticism. The central bank's Market Expectations Survey (REM) anticipates growth of just 2.9% for 2027 and a wholesale dollar around $2,016 in December of that year, more than $170 above the official forecast. The gap between the Casa Rosada's optimism and the private diagnosis is nothing new — the 2026 Budget projected 5% growth and 10.1% inflation for a year that will close near 2% and 30%, respectively — but it is politically relevant: 2027 is an election year, and the credibility of macro projections directly shapes investor expectations against a backdrop of hard-currency debt maturities exceeding $24.9 billion.

What is genuinely new in the document is its statement of intent on fiscal discipline. Caputo told the Chamber of Exporters that the 2027 financial surplus would be unprecedented in Argentine history for a non-defaulting government. "They'd have to change the minister" was his answer when asked whether he was willing to expand spending by half a point of GDP for the election year. The IMF agreed on a primary surplus target of between 1.4% and 1.8% of GDP, while the Budget contemplates 1.3%, implicitly acknowledging that the 2026 fiscal target was adjusted downward. According to Ámbito Financiero, the government further admitted it will miss the 2026 fiscal target, though it is confident of passing the Fund's review scheduled for September 21.

The global environment surrounding this presentation could hardly be more complicated. Brent crude has accumulated a gain of nearly 27% in less than a month, driven by the conflict in the Strait of Hormuz, which has knocked out key refineries in Saudi Arabia and constrained crude flows along a route that carries 20% of global supply. That global inflationary pressure is forcing the Federal Reserve to raise rates — the market prices in a 25 basis point hike with a 92% probability — which lifts the yield on risk-free assets and demands higher returns from emerging-market bonds. Argentina's Globales and Bonares fell 0.3% on average on Wall Street, and JP Morgan's EMBI climbed 14 units to 506 basis points. Lorenzo Sigaut Gravina, of Equilibra, summed up the central bank's dilemma: during 2026 the BCRA achieved three objectives simultaneously — a calm dollar, low rates and massive reserve purchases — but it can no longer do so. So far in September the daily average of purchases has fallen to barely $14 million, versus a pace that previously exceeded $100 million a day. Gross reserves stand at $49.953 billion, down $458 million on the day due to payments to the IBRD and the IDB.

The flip side of this financial fragility is an export sector operating in a completely different register. Argentina exhausted in just nine months the expanded 100,000-ton beef quota granted by the United States — quintupled by Donald Trump in February as a gesture to Milei — oil production hit historic records at 916,200 barrels per day in July, lithium exports grew 154% and whole soybean exports are up 27% year-to-date. The Chamber of Exporters estimated foreign sales of $103 billion for 2026, which would mark a historic milestone the country has been chasing since 2011. Caputo himself anticipated a trade surplus of between $26 billion and $27 billion for the year. U.S. Treasury Secretary Scott Bessent reinforced political backing for the government from Washington, telling the Senate Financial Services Committee that Argentina is "a benchmark for Latin America" and that the $20 billion swap line — of which Buenos Aires used only a fraction — generated "gains of tens of millions of dollars" for the U.S. taxpayer.

But export success carries a social counterweight that The Economist described bluntly this week: "Argentina needs less shouting and more growth." Real wages remain below November 2023 levels, registered private employment destroyed nearly 46,000 jobs in the first half, beef consumption fell 9.5% year-on-year to historic lows of 46 kilos per person, and private estimates from UCA's Observatory of Social Debt anticipate first-half poverty will oscillate between 31% and 32%, implying between 1.5 and 2 million new poor relative to the 26.9% floor reached in the third quarter of 2025. The manufacturing industry operates at levels similar to those of the 2019 crisis, installed capacity fell to 58.2% in July — the ninth consecutive month below 60% — and a Fidelitas report identifies 57,045 companies with irregular payments, classifying the scenario as "Elevated Risk." Economist Milagros Gismondi, of Invecq, described the situation with surgical precision: the 2027 Budget is "optimistic but more moderate than the previous one."

Against that backdrop, the privatization of Agua y Saneamientos Argentinos (AySA) advanced today to its first concrete stage. Only two of the 17 originally interested builders submitted technical bids: the consortium led by Rowing S.A. together with Arcos, Transclor and the PHX fund, and the Roggio Group through Roggio ROAS S.A.U. The government estimates raising around $450 million for 90% of the capital, though the tender establishes no minimum price. The new operator will have to invest $1.94 billion in the first five years and more than $15 billion over 30 years, in a concession serving 14 million people in the Metropolitan Area. The process advances in parallel with an injunction from the La Plata Court of Appeals limiting the scope of the concession, and with projections indicating that universal drinking-water coverage will not be reached before 40 years.

On the energy front, YPF — whose shares trade on the NYSE and closed at $56.28, approaching their all-time high of $57.49 — confirmed at the Gastech conference in Bangkok that Argentina LNG is close to signing between two and three liquefied natural gas sales contracts with buyers in Japan, Italy and Germany, for volumes of between 0.5 and 1.5 million tons per year. The final investment decision is scheduled for late November, when the consortium — which also includes Italy's Eni and the UAE's XRG — will need to have 90% of its estimated 12 million tons annual output committed. The project, with a projected investment of $51 billion over 20 years, would represent the largest private outlay in Argentine history.

Market eyes will be on three upcoming dates: the Federal Reserve's decision this Wednesday, which will determine the floor for global rates and appetite for emerging-market assets over the coming weeks; the IMF review starting September 21, where Buenos Aires will have to defend its fiscal compliance before an institution that already sees divergences from the original targets; and the publication of the official poverty figure on September 24, which will put concrete numbers on the social cost of a stabilization that, so far, has worked better for sectors that export dollars than for those that live on pesos.