The US bet big on Argentina bailout

US Treasury Secretary Scott Besent was the point person for selling financial markets on some of President Donald Trump’s riskiest economic gambles: sweeping global tariffs, trade talks with China, and preparations to appoint a new leader at the US central bank.

But the most difficult task for Picent may just be the White House’s bet on Argentina.

The United States rose to the scene in mid-September, in response to the decline in the value of the peso – the Argentine currency – which officials feared would put Trump ally President Javier Miley and his party at risk in the looming midterm elections.

Besant said the United States will do whatever is required to stabilize the situation, describing the country as a key ally in the region.

Politically, the US intervention – which included buying the peso and setting up a $20bn (£15bn) currency swap line giving Argentina’s central bank access to the dollar – was a success for Milley.

Not only did his party manage to stave off losses in the midterm elections, but it also made progress, strengthening its position.

But whether American intervention in the country will be a financial success is another question.

The peso has fallen about 30% this year, including about 4% over the past month. This decline came despite US commitments – and a modest rise after the election.

It is an indicator of ongoing danger. Ultimately, the United States may find itself holding a pile of pesos that is worth much less than it was originally.

The intervention in Argentina was a highly unusual move – especially by a White House known for its “America First” approach.

Miley has endeared himself to conservatives in the United States by embracing free-market reforms and radical spending cuts. He has met repeatedly with Trump, whom he described as his “favorite president.”

But the United States has rarely offered financial bailouts to other countries — especially where they do not pose broader risks to financial stability — and direct purchases of struggling emerging market currencies are unprecedented, says Brad Setser, a senior fellow at the Council on Foreign Relations.

Adding to the risks is Argentina’s long history of currency devaluations and debt defaults, including most recently in 2020.

Few are in a position to be as aware of the potential pitfalls as Bescent, who made his name as a currency trader working for George Soros.

Besant is best known for participating in the 1992 scalping against the British pound. At the time, investors who had bet that the pound was overvalued were said to have beaten the Bank of England with their aggressive selling.

This time, Besant finds himself on the other side of a similar gamble. He has defended his moves, citing the specter of Venezuela, the South American country, and arguing that failure to support Argentina as a US ally could lead to destabilization in the region.

“These results are a clear example of the success of the Trump administration’s policy of peace through economic strength,” Besant wrote on social media after the recent elections in Argentina.

On Wednesday, Besant posted again to say: “The Argentine economic bridge is now a win for the American people.”

The US Treasury Department did not respond to inquiries requesting more details.

But it has remained silent on the basic information needed to evaluate Picente’s claims – including the timeline and volume of its peso purchases – or sales – and what other assets, if any, the Argentine government has pledged in order to secure the swap deal.

Analysts estimate that the United States has bought $2 billion worth of pesos so far, which is hardly a shocking figure.

But Democrats criticized the aid at a time of White House spending cuts and ongoing government shutdowns, accusing Picent of wanting to protect “friends” of funding through investments in the country.

Even some members of Trump’s Republican Party questioned the extent of the aid’s compatibility with the president’s “America First” goals.

Becent objected to any characterization of US support for Argentina as a “bailout”, promised that there would be “no losses to taxpayers” and even declared the peso “undervalued”.

But while this may be true for short-term trading, this opinion does not represent the general consensus.

On the contrary, most analysts say the peso is overvalued, but it is supported by support from the Argentine Central Bank, which set trading limits for the peso in April.

Economists say maintaining such limits is not sustainable. They cite the rise in the number of Argentines traveling to make purchases in neighboring countries, as their money travels further afield, as one sign that the peso remains artificially high.

Argentina’s central bank insisted it would stick to the trading band, which was intended to protect the country from wild currency fluctuations that destabilize prices and support Miley’s efforts to control inflation.

But it has already had to spend billions to buy pesos to keep the currency stable, draining IMF funding and declining its foreign reserves, which are key to repaying its debt obligations.

Economists say they expect the bank will have to change its policy to allow the peso to fall further – or the country risks needing another bailout.

This choice poses a dilemma for Besant, given his promises to protect the United States from losses.

He asked, “Is the United States ready to provide support to Argentina so that Argentina can defend the peso at this level?” asks Mr. Setser. “Becente has to sort of decide whether to double down…or he has to let the peso adjust and acknowledge that his intervention was a bridge to the election.”

The peso fell ahead of the midterm elections, as businesses and households in Argentina rushed to trade the currency against the dollar.

People wanted to protect themselves, remembering the way the currency collapsed in 2019 After the election loss of former President Mauricio Macri, also known for economic reform, says Joaquín Bagues, managing director of Buenos Aires-based Great Capital Group.

He added: “Everyone I spoke to wanted to buy dollars… They have very fresh memories of that,” describing the race as a “crisis of confidence.”

Demand for the dollar has declined since the election, Baguis says.

But the peso has not seen the kind of sustained relief seen in other assets, such as bonds or the stock market, which rose more than 20% the day after the election and continues to rise.

While Argentine companies have begun tapping international lending markets again, after freezing them before the election, analysts say they expect US banks to remain wary of lending to Argentina, despite Becent seeking to arrange an additional $20 billion in private financing.

Bagoys says there are a lot of policy questions waiting to predict what will happen to the peso.

Katherine Exum, co-head of sovereign research at Gramercy Funds Management, notes that the peso could rise “in the medium term” if the government is able to continue pushing economic reforms.

But she adds: “There is a lot to do between now and then.”

For now, Anthony Symond, investment director in the emerging markets debt team at Aberdeen Group, says he expects the peso to fall further.

“Besant might say one thing, but I think the economic reality might force them to be a little more flexible on currency management,” he says.