Trump rides to Milei’s rescue
Argentina’s President Javier Milei heaped praise on his US peer Donald Trump this week for helping to avert an incipient economic crisis. Sustained pressure on Argentina’s currency and economy this month led to the central bank (BCRA) burning through precious international reserves in a vain attempt to prop up the peso. This pressure would only have grown until at least the mid-term federal congressional elections on 26 October if Milei had not shared an ideological affinity, and close rapport, with Trump. US Secretary of the Treasury Scott Bessent made this explicit, while announcing that Washington would “do what is needed” to support Argentina, which was “a systematically important US ally in Latin America”. His words promptly calmed the markets and order was restored – for now.
In the first three weeks of September, the peso lost 10% of its value; the Merval index of leading Argentine stocks fell by 15%; US dollar-denominated sovereign bonds sank by between 21% and 29%; and Argentina’s country risk index soared by over 70% to almost 1,500 basis points.
President Milei sought some rhetorical assurances from the US government, backed up by its financial muscle, after the BCRA spent as much as US$1.1bn in the space of three days last week to try and arrest the fall of the peso which burst through the exchange rate band established in April in the wake of Argentina’s most recent restructuring agreement with the International Monetary Fund (IMF). He said the government was putting in place an “anti-run financial system” to prevent sudden movements in the exchange rate in the future. But given that Argentina’s dwindling international reserves and capacity to meet its debt obligations (of which US$4bn falls due in January and US$4.5bn in July) are one of the main reasons why investors have been getting uneasy, burning through reserves at this rate merely compounded the problem.
Bessent answered the call for aid. Writing on social media on 22 September he said that “all options are on the table”, adding that these “may include, but are not limited to, swap lines, direct currency purchases and purchases of US dollar-denominated government debt from Treasury’s Exchange Stabilisation Fund”. It is likely that Bessent was banking on the mere mention of US financial firepower deployed behind Argentina sufficing to assuage investor concerns. His words duly calmed the markets: the peso strengthened by some 4%, dollar-denominated bonds by 6%, and Argentine stocks by 6%.
Bessent said he was “confident that [Milei’s] support for fiscal discipline and pro-growth reforms are necessary to break Argentina’s long history of decline”. But it was not so much what Milei has been doing and more what he has been saying, with his unequivocal support of Trump, which was key. “We’re sending a message that if you do the right thing, if you follow good policies, that if you’re aligned with the values of the United States…we are willing to provide assistance when things move out of equilibrium,” Bessent said.
Milei expressed his “enormous gratitude” to Bessent and Trump for their “unconditional support for the Argentine people, who two years ago chose to turn the page on a century of decay, with great effort”. Bessent said there would be no “conditionality” placed on the Milei administration in connection with the US assistance.
When Milei travelled to New York for the United Nations General Assembly, he met Trump and Bessent on 23 September to discuss the details of this aid. “We’re going to help them. I don’t think they need a bailout,” Trump informed reporters after the meeting. Bessent said the US was in discussions over a US$20bn currency swap line with the BCRA and stood ready to purchase Argentina’s dollar-denominated bonds in the secondary market to see off “those who seek to destabilise Argentina’s markets for political objectives”.
Bessent also maintained that a long line of US companies were keen to invest in Argentina “in the event of a positive election outcome”. This is essential for Milei. The future of his presidency, and any re-election ambitions, hinge on his far-right La Libertad Avanza (LLA) and allies making tangible gains in next month’s mid-term congressional elections. The political opposition is growing increasingly assertive in the current congress, where the LLA has a paltry representation. The Partido Justicialista (PJ, Peronist) was further buoyed by its decisive victory in the legislative elections in the province of Buenos Aires on 7 September, which significantly heightened market concerns about the continued viability of the Milei administration’s austerity measures agenda going forward.
Kristalina Georgieva, the managing director of the IMF, for which Argentina has been like an albatross for years, currently making up almost half of its US$125bn in outstanding lending worldwide, seemed to get as much respite as Milei from Bessent, praising US support, which she said “underscores the crucial role of partners in promoting strong policies for stabilisation and growth [in Argentina]”. But while investor confidence has grown each day since Bessent’s announcement, the markets were buoyed by the rhetorical support, backed up by the financial clout of the US. Investors will know there is some ‘conditionality’ whatever Bessent might say: US support is conditional on Milei staying in power.
If Milei fails to make gains in the mid-terms, scuppering his reform agenda and with it potentially his re-election hopes, pressure on the peso will grow again and country risk take wing as investors will know that the US is not going to offer this support to a Peronist government. Milei is outwardly buoyant about the mid-terms and downplayed the significance of the provincial election defeat in Buenos Aires. “Local elections have never been a good indicator of national elections,” he insisted in a radio interview at the weekend, even though it was him that had turned the local elections into a national referendum on his government in the first place.
It is not just political concerns alarming investors, however. They also want to see the BCRA accumulate more international reserves. In a bid to further boost reserves, on the same day as Bessent announced US financial support for Argentina, Milei’s spokesperson, Manuel Adorni, announced a temporary suspension of taxes on grain exports, as well as on beef and poultry, until 31 October 2025, in order to encourage agricultural producers to increase sales, swelling the BCRA’s coffers with US dollar reserves. In the event, however, the government swiftly curtailed this offer. Within three days, it was gone as an export quota of US$7bn was reached.
Bread today, hunger tomorrow
Former president Cristina Fernández (2007-2015) responded to the offer of US financial support by posting on social media, “bread today, hunger tomorrow”. “Dollars that enter through the front door go out through the back door, what part of this do you not understand?” she added, addressing President Milei. After President Trump publicly wished Milei all the best in the forthcoming mid-terms and his re-election bid in 2027, she quipped, “US$20bn more for your ‘re-election’”.