A report by the Congressional Research Service, the public think tank of the United States Congress, has indicated that Argentina may face the necessity of devaluing its currency or defaulting on its debt. The document, dated December 30 but released this week, stated that “Argentina’s main source of foreign currency is the remaining balance on its currency swap line with the United States,” established by both nations in October. The swap line, a component of the U.S. Exchange Stabilization Fund, amounts to US$20 billion, with private estimates indicating that Argentina has utilized more than US$2 billion of this allocation. Neither the Central Bank nor the Economy Ministry provided confirmation regarding the amount expended by the country, which constitutes new debt with the United States Treasury.
The report constitutes an assessment conducted by the U.S. Congress regarding Donald Trump’s assistance to Argentina. The legislative body may express “concerns” regarding the loan, which could lead to actions such as limiting the Treasury Secretary’s capacity to utilize ESF funds for the support of foreign governments or mandating the disclosure of details pertaining to ESF operations involving foreign governments, as indicated in the CRS document. It stated that Congress could also approve “greater financial support to Argentina.” The report further examines Argentina’s circumstances over the last two years, during the presidency of Javier Milei. The assessment reached the conclusion that the administration’s “economic reforms have had mixed results.”
“The economy is experiencing growth, inflation has decreased, and the government is maintaining a budget surplus,” the report stated. However, the document also noted the variability in unemployment statistics — with a slight decrease following a spike, yet accompanied by an increase in informal employment — as well as the “protests against the government’s spending cuts. The Central Bank’s foreign-exchange assets are largely offset by foreign exchange liabilities, and Argentina does not have a strong trade surplus to generate inflows of foreign currency,” the report stated. “If the Milei government finds itself without the adequate foreign exchange to make debt payments and sustain exchange rate policy goals, it will likely face difficult policy decisions, such as whether to default on its debt for a tenth time or allow more flexibility in the value of the peso,” it added, indicating that, under such a scenario, the government could seek additional financial support from the United States, the International Monetary Fund, or other lenders. The report indicated that the prospects for securing such support remain uncertain.
The CRS noted the currency run preceding the October 26 midterm legislative elections, during which “to maintain the peso within the exchange rate band, Argentina’s Central Bank intervened in foreign exchange markets” by selling U.S. dollars. “However, concerns arose regarding the duration for which the Central Bank could maintain this policy. For instance, during a specific three-day timeframe, it transacted over $1.1 billion in foreign currencies,” it detailed. “Going forward, questions persist about the stability of the Milei administration’s exchange rate policies and Argentina’s ability to honor looming increases in scheduled debt payments,” the document stated, adding that there are doubts regarding the country’s adherence to its program with the IMF.