Argentina’s Central Bank and the US Treasury signed a currency swap line for US$20 billion, a vote of confidence for President Javier Milei ahead of a crucial midterm election. But with details still scarce, bonds erased initial gains and the peso weakened.
The deal, announced by the Argentine monetary authority on Monday, is a key pillar of a sweeping rescue package Treasury Secretary Scott Bessent put together for Milei in a whatever-it-takes approach to stabilise the volatile South American economy. Beyond the swap, the US has been buying Argentine pesos for the past two weeks, and Bessent said he’s coordinating another facility worth the same amount as the swap that would be financed by banks and other private institutions.
Specific terms and conditions weren’t detailed in Argentina’s initial announcement. The US Treasury has yet to release its own statement. It remains unclear what concessions, if any, Argentina made as part of its agreement beyond maintaining its austere fiscal policy and when the swap will come into effect.
Argentina’s dollar bonds jumped on the Central Bank statement, with notes maturing in 2035 climbing as much as a cent before reversing gains to trade flat at nearly 56 cents on the dollar, according to indicative pricing data compiled by Bloomberg. The peso weakened as much as 2.1 percent to touch an intraday low before paring losses
The wavering market of Argentine assets is a testament to investor disappointment with the lack of public information about the inner workings of the deal. “This was highly expected by the market,” Pedro Quintanilla-Dieck, a strategist at UBS, said of Monday’s statement. “They confirmed what investors already knew but there were no details.”
Milei met with US President Donald Trump last week at the White House and his team, led by Economy Minister Luis Caputo, had spent the prior week negotiating in Washington with Bessent’s staff before attending the annual meetings at the International Monetary Fund. At the White House, Trump warned that aid to the nation was contingent on a good election result, worrying investors that the help may only come after the vote.
Over the weekend, Trump defended sending Milei a lifeline. “They have no money, they have no anything, they’re fighting so hard to survive,” Trump told reporters aboard Air Force One. “I happen to like the president of Argentina, I think he’s trying to do the best he can, but don’t make it sound like they’re doing great, they are dying.”
In April, Argentina received most of a US$20-billion IMF loan, which came with Milei lifting some currency controls and letting the peso float within a range. However, Argentine officials have propped up the peso in a myriad of ways, such as selling futures contracts or selling dollars, fuelling market speculation that the currency remains overvalued.
Argentina’s currency has continued to sell off despite Treasury buying pesos and repeatedly signalling for a month that an agreement is coming. Currency traders in Argentina estimated that the US sold over US$200 million on Friday in peso transactions, building on other interventions from previous days. The peso is down six percent so far in October and more than 40 percent so far this year, the worst in emerging markets over both periods.
“With Bessent’s remarks and recent sales showing diminishing impact, confirmation that the swap line is already available could be critical to preventing the official rate from testing the upper bound of the FX band at ARS 1,490 per USD this week,” StoneX strategist Ramiro Blazquez said in a report to investors.
Argentines are set to renew half the lower house of Congress and a third of the Senate on October 26. With less than 15 percent representation today, Milei’s libertarian party needs a strong showing in the midterms to pass his ambitious austerity agenda and prove to investors that his market-friendly reforms are here to stay despite many false dawns in Argentina.
A landslide loss in a local provincial election in September sent bonds and the currency tumbling, worrying investors about the bigger vote this month. Milei’s momentum has been dented by two corruption scandals: one implicated his sister, who is one of the president’s chief advisers, while the other resulted in a key ally to withdraw his candidacy over ties to an indicted drug trafficker. Both have denied any wrongdoing.
Milei has also lost some support among voters as inflation has outpaced wage growth throughout his term, while he’s cut generous subsidies on utilities that made living costs soar. Economic activity also contracted for three straight months through July as high interest rates ground business to a halt.
related news
by Manuela Tobias & Patrick Gillespie, Bloomberg
Comments