United States readies US$20-billion rescue to help Milei win in Argentina

The United States plans to extend a US$20 billion swap line to Argentina and is ready to buy the country’s foreign bonds, providing much-needed financial support to President Javier Milei as he tries to regain investor confidence and stem a run on the peso.

Terms of the deal are still being negotiated, Treasury Secretary Scott Bessent said in a post on X. The announcement of the talks had, at least initially, the desired effect, underpinning the peso and sparking gains in Argentine bonds and stocks. 

“I don’t think the market has lost confidence in him,” Bessent told Fox News on Wednesday, referring to the Argentine leader. “I think the market is looking in the rearview mirror and looking at decades – about a century – of terrible Argentine mismanagement.”

Milei, a free-market reformer and a close ally of US President Donald Trump, has faced mounting financial pressure in the two-and-a-half weeks since his party lost a key provincial election by a landslide, a bad omen just a month ahead of midterm congressional elections.

The defeat prompted investors to pull their money out of the country, fearful Milei is losing the support he needs to sustain his business-friendly reform agenda, tame inflation and stabilise the currency.

Bessent described the aid as a “bridge to the election,” referring to the October 26 vote in which Milei is looking to boost his La Libertad Avanza party’s presence in Congress. In recent weeks, lawmakers there have moved to overturn the President’s vetoes on spending bills, threatening the balanced books he sees as his crowning achievement so far. 

In addition to the swap line, Bessent said the US is “prepared to deliver” a stand-by credit from the Treasury’s Exchange Stabilisation Fund. It wasn’t immediately clear if the swap and stand-by credit would both come from the ESF.

Washington’s move ends “uncertainty about the liquidity difficulties generated by the economic program so far,” said Federico Filippini, chief economist at Adcap Grupo Financiero. “The announcement that the Treasury would be willing to directly purchase sovereign debt significantly increases the likelihood of a fall in country risk to the point that the government could issue debt in early 2026.”

After Bessent’s announcement, Argentina’s central bank slashed its one-day peso repo rate — one of its key monetary policy tools — by 10 percentage points to 25 percent. That blunted a rebound in the currency, with the peso about two percent stronger on the day, compared to almost three percent earlier. Dollar bonds jumped across the curve, with notes due in 2035 rising almost three cents, nearly erasing losses seen since the September 7 election setback. The benchmark S&P Merval stock index was up 2.7 percent. 

The US support may be a moment for Milei to shift his currency policy so the Central Bank can rebuild its depleted foreign reserves. Monetary officials blew through more than US$1 billion last week to keep the peso within a trading range established in April as part of Argentina’s latest deal with the International Monetary Fund.

“This helps to correct expectations,” said Daniel Marx, a former Argentine finance secretary who is now director of consulting firm Quantum Finanzas. “The ideal thing now is to move as quickly as possible toward a more open, market-based mechanism” on foreign exchange, he added.

Gita Gopinath, who was deputy managing director at the IMF until the end of August, echoed that sentiment. “US support is certainly helpful to prevent speculative currency moves,” she said in a post on X. But durable progress will also require Argentina to institute a “flexible exchange rate regime, accumulate reserves, and build support for its reforms at home.”

Bessent’s plan would mark an extraordinary turnabout for a US president who was elected on a promise to limit US military and financial interventions overseas in favour of focusing on domestic concerns. Since taking office, Trump has slashed billions in foreign aid and cut or suspended military assistance for Ukraine in its fight against Russia. But in the case of Argentina, Trump appears to be coming to the aid of a leader whom the administration views as an ideological ally.

Trump has made moves to aid Argentina before, though never so directly. During his first term in 2018, Trump pushed the IMF to approve an initial US$50-billion programme for the country under former president Mauricio Macri, a deal that quickly unravelled. 

Since then, the IMF has struck two more agreements with Argentina including the US$20-billion package Milei secured this year. That loan raised many red flags for the fund’s top decision-makers but got a green light anyway with a push by the US.

“With Wednesday’s additional expression of support likely to keep any debt or currency crisis risks at bay, the economics team will probably now turn its attention to preserving relatively orderly, if not thriving, economic conditions until the October 26 midterm elections," said Jimena Zuniga, Latin America geoeconomics analyst and Argentina economist for Bloomberg.

Now in his second term, Trump has stoked tensions with Brazilian President Luiz Inácio Lula da Silva, threatened new tariffs on Mexican President Claudia Sheinbaum, and ordered strikes on boats belonging to alleged drug-traffickers in the Caribbean as a warning to Venezuela’s Nicolás Maduro. All the while, Milei has made repeated trips to the United States to publicly praise Trump.

Even before Bessent detailed the financial support Wednesday, US economists were critical of Washington propping up Milei’s economic policies after Argentina has repeatedly failed to fully comply with its IMF programmes, while it defaulted on sovereign debt three times since 2001.  

“The US has to worry that it will end up in the same position as the IMF,” Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury official in the Obama administration, said before Bessent’s announcement. “The world has learned that it’s a lot easier to lend their money to Argentina than to get it back.”

There’s also been political criticism. Senator Elizabeth Warren of Massachusetts, who had earlier pressed Bessent for more information on the Argentina relief plan, blamed Trump for what the Democrat described as a bailout for “a political ally and his global investors before an election.” 

Another key detail of Bessent’s announcement was that the US was working “to end the tax holiday for commodity producers” in Argentina, referencing temporary tax cuts Milei puts in place just on Monday. Exporters rushed to register nearly US$4.2 billion of grain shipments to qualify for the tax break and capture a relatively advantageous exchange rate.

The Trump administration’s swap line, meanwhile, will likely raise questions in Beijing since the figure is bigger than Argentina’s line with China’s Central Bank, which is about US$18 billion. The US has been critical of the China swap in the past and local media reports suggest Milei is again under pressure to abandon it. 

Despite his libertarian ethos, Milei has increasingly intervened in the stagnating economy to support the peso, seeking to prevent annual inflation from spiking again ahead of the midterm elections. Inflation has dropped to 34 percent from 289 percent last year, and Milei needs a strong electoral showing to bolster his slim minority in Congress, where opposition lawmakers have so far resisted his market-friendly agenda and economic reforms. 

Amid Milei’s heavier hand, economic activity has fallen in recent months and analysts in Argentina forecast a third quarter contraction in gross domestic product after a minor dip in the previous period. Unemployment remains elevated, particularly as construction, manufacturing and retail have all struggled from weak consumer spending during Milei’s Presidency.