The years President Javier Milei dedicated to cultivating a relationship with Donald Trump are yielding dividends at a pivotal juncture as he confronts Argentina’s most recent currency crisis. When investors lose confidence and the Central Bank expends reserves to avert a peso devaluation, as occurred this week, the outcomes are seldom favorable. As Milei endeavors to avert a meltdown that would likely ensure the obliteration of his party in the upcoming mid-terms, he possesses a distinct advantage that is rare among emerging market leaders: the backing of the US Treasury. “It’s very hard to believe that it is different this time, but I believe with President Milei it is,” US Treasury Secretary Scott Bessent stated this week in an interview.
In recent weeks, the libertarian leader has encountered protesters hurling rocks, experienced electoral setbacks, and faced financial turmoil, raising doubts about his capacity to control inflation and navigate the upcoming midterm election on October 26 without encountering a crisis. A significant loss next month could potentially conclude his political endeavor, and the administration of Donald Trump is resolute in its efforts to avert such an outcome. Bessent announced on Wednesday that the US was prepared to extend a US$20-billion lifeline to the beleaguered economy, going beyond mere attempts to bolster confidence. Milei, who campaigned on promises to dollarise the economy and close the Central Bank, is now engaged in negotiations for a currency swap line between the US Treasury and the Argentine monetary authority. In the United States, Democrats raised concerns regarding the compatibility of lending to a junk-rated borrower with a “America First” agenda. Trump himself stated on Tuesday that he did not believe Milei required a bailout.
Bessent has proposed the acquisition of Argentina’s dollar-denominated debt. While discussions are ongoing, this development has sufficiently alleviated the concerns of investors who had abandoned Argentine assets following Milei’s party’s significant defeat in the recent local elections in Buenos Aires Province. The peso and the nation’s dollar bonds experienced a recovery following a prolonged period of declines. Milei, whom Trump has called his “favourite president,” requires a robust showing in October to secure sufficient backing in Congress for his pro-business reforms and to maintain control over the fiscal deficit. For investors, a favorable election outcome for Milei would likely reduce Argentina’s borrowing costs and facilitate the country’s re-entry into international debt markets next year, marking its first return since the restructuring in 2020. Since assuming office in 2023, Milei has made multiple trips to the United States, being among the select few Latin American presidents invited to Trump’s inauguration. While Trump frequently resorts to threats and sanctions to exert influence over Latin America, he has, at times, offered support to his allies in the region. He has engaged El Salvador’s Nayib Bukele to incarcerate US deportees and is presently in discussions to finalize a security agreement with Ecuador’s Daniel Noboa.
Critics have lambasted Milei’s foreign policy for overly relying on a singular relationship with the United States. However, it is currently yielding substantial returns. “At times, he faced criticism for that, and, as a result, here you have the payout,” Economy Minister Luis Caputo informed. Prior to the intervention by the United States, Argentina’s Central Bank expended US$1.1 billion in efforts to stabilize the peso. Argentina’s net reserves, defined as the hard currency available beyond obligations like loan repayments, are currently at a mere US$6 billion. According to Daniel Lansberg-Rodriguez, the Trump administration is “not known for writing a lot of cheques. The objective they are pursuing is to halt the losses.” In an effort to address inflation, which remains a primary concern for the electorate, Milei has taken measures to bolster the peso’s value relative to the dollar. Multilateral lenders, including the International Monetary Fund, facilitated this development by providing new lines of support to the nation experiencing serial defaults, motivated by Milei’s austerity measures.
Guido Sandleris, a former head of Argentina’s Central Bank, compared Milei’s dollar crunch to attempting to stay warm with an inadequately sized blanket. “By covering themselves with a short blanket on the inflation side, they became venerable to a run currency because they didn’t accumulate enough reserves,” stated Sandleris, currently a professor of economics at Johns Hopkins University and Buenos Aires’ Torcuato di Tella. Although the annual inflation rate has decreased significantly from over 200 percent since Milei assumed office, it continues to be exceptionally high in a global context, exceeding 30 percent. This has adversely affected consumers, as wage growth has not matched the rate of inflation since Milei assumed office.
Recent opinion surveys indicate that over fifty percent of Argentines express disapproval of their president. Milei is attempting to dismantle decades of state intervention in the economy through the privatization of state-owned enterprises, alongside reductions in subsidies and regulatory measures. The continuation of his initiatives will hinge on the level of congressional support he is able to garner following the mid-term elections. And that, in turn, hinges on whether, with US assistance, he can keep the economy on course until that time.