Bessent’s plan runs short on time to line up Argentina financing

(Bloomberg) --With just a few days before a crucial midterm election in Argentina, scepticism is growing that Scott Bessent can pull off the second half of his US$40-billion rescue package.

The US Treasury has been floating a US$20-billion financing deal involving banks, including JPMorgan Chase & Co, Bank of America Corp,  Goldman Sachs Group Inc and Citigroup Inc, according to people familiar with the matter. But key details such as the debt’s terms, structure and collateral remain unaddressed, leading to increasing doubt that such a complicated and large deal can be pulled together in a matter of days, the people said, asking not to be identified discussing private information.

People with knowledge of the banks’ work so far said their firms have yet to identify what collateral in Argentina would back the loans and that they’re relying on the US Treasury for a breakthrough. No banks have been officially mandated on any loan, one of the people said.

Coincidentally, JPMorgan Chief Executive Officer Jamie Dimon is visiting Argentina this week for an event the Wall Street giant is hosting. While that trip was planned long before talk of a rescue package, it means some of the bank’s top brass will be on the ground at a crucial time.

Uncertainties surrounding the financing are heaping pressure on the Argentine peso and undermining Treasury Secretary Bessent’s attempts to stabilise the country’s economy and help political ally and libertarian President Javier Milei notch a win. On Tuesday, the peso tumbled to a record low against the dollar, even after the US confirmed it had inked a separate US$20-billion currency swap line with the crisis-prone nation’s Central Bank. 

“You could argue that the lack of specificity may undermine the markets’ belief as to the extent of the US Treasury’s involvement,” said Mark Sobel, a former 40-year veteran at the US Treasury who is now the US chairman for the Official Monetary and Financial Institutions Forum, a UK-based think tank. “But first and foremost the peso is under pressure because everyone knows that the peso is overvalued.”

Representatives for the banks, US Treasury and Argentina’s central bank declined to comment or didn’t immediately respond to messages seeking comment.

The Treasury and Argentina finalised the swap line this week, aiming to stave off the deepening peso rout. Bessent characterised the move as “an economic stabilisation” deal in a post on X Tuesday. The agreement wasn’t a bailout but a bridge to Argentina’s better economic future, he said. 

Beyond the swap, Bessent has said he’s coordinating a separate facility that would be financed by banks and other private institutions. Details on the proposal remain unclear – even to the banks involved, some of the people said. As they await more information, market veterans – including at firms in contact with officials – are examining historical precedents and the possible approaches they offer for structuring financing, according to people familiar with the conversations.

One concept floated by such veterans would have the loan guaranteed by the Treasury’s Exchange Stabilization Fund – an emergency reserve used to steady the US dollar and international financial markets. The fund had more than US$220 billion of assets at the end of August, the bulk of which are comprised of so-called special drawing rights at the International Monetary Fund and other institutions.

Last month, when Bessent said the Treasury was in negotiations for the swap, he noted they were “also prepared to deliver significant stand-by credit via the Exchange Stabilization Fund.”

Copper, uranium

Another route would be to back the loan with commodities such as copper and uranium, akin to a rescue financing for Mexico in 1995. At that time, a US-led bailout package to the country was collateralised by Mexico’s future oil export revenues. But that avenue could be fraught with political and operational challenges, one of the people said. 

A third alternative could feature a total return swap structure similar to the US$1-billion deal Angola entered into with JPMorgan in December, backed by almost US$2 billion of dollar bonds. 

Whatever the path, the banks remain on standby with scarce details while they await instructions from the US Treasury, according to some of the people. In the past, when the Treasury has announced crisis measures domestically or internationally, they’ve typically been accompanied with substantial and detailed documentation on the measures. That Bessent’s Treasury Department has taken to social media to make key market-moving announcements about the financing has left many with questions.

Some banks are already playing roles in the Argentine rescue effort. Citigroup sold Argentine pesos to the US Federal Reserve last week as part Bessent’s push to buoy the currency and Milei’s administration. Banco Santander SA has continued to buy pesos in Argentina’s local market on behalf of the Treasury, Bloomberg reported. 

Two years into office, Milei faces his biggest test on Sunday in midterm elections, when voters will cast ballots to elect almost half the seats in Congress. Although inflation and poverty have dropped sharply under his tenure, economic activity has flatlined this year, retail sales have been down for six straight months and his party has faced recent corruption scandals.

The party only holds about 15 percent of all the seats in Congress, allowing opposition lawmakers to overturn some of his vetoes on spending bills in recent months. Investors are looking to see if Milei secures at least a third of the seats in the lower house of Congress to protect that veto power.

But his party suffered a major setback in September when it lost a local election in Argentina’s most populous region, Buenos Aires Province, in a landslide to the rival Peronist party. That vote was seen as a bellwether for the national race, and it revived investor fears that Milei’s pro-market agenda could stall and his re-election bid in two years would become more challenging.