The United States initiated financial support for Argentina in mid-September, responding to a significant decline in the Argentine peso. This intervention, led by US Treasury Secretary Scott Bessent, involved peso purchases and the establishment of a $20 billion currency swap line to provide Argentina's central bank with access to US dollars. The stated aim was to stabilize the currency and support President Javier Milei's government ahead of midterm elections, where his party subsequently strengthened its position. However, questions persist regarding the financial success of the intervention, given the peso's continued depreciation and Argentina's history of currency devaluation.
US Financial Intervention
In mid-September, the US began financial intervention in Argentina following a sharp decline in the peso. Officials expressed concerns that the currency's instability could affect President Javier Milei and his party in upcoming midterm elections. US Treasury Secretary Scott Bessent stated that the US would take necessary steps to stabilize the situation, citing Argentina as a key regional ally.
The intervention included direct purchases of pesos and the creation of a $20 billion (£15 billion) currency swap line, which allows the Argentine central bank to access US dollars.
Political Outcomes
Politically, the US intervention preceded a positive outcome for President Milei's party in the midterm elections. The party maintained its position and gained additional seats, strengthening its standing.
Financial Performance and Risks
Despite the US financial commitments, the Argentine peso has experienced a depreciation of approximately 30% this year, including a 4% decline over the last month. A modest rally occurred after the elections, but the overall trend has been downward.
Financial analysts, including Brad Setser from the Council on Foreign Relations, have noted that direct purchases of a struggling emerging market currency are an unprecedented action for the US. Argentina has a history of currency devaluation and debt defaults, with the most recent occurring in 2020.
Context of US Involvement
The US intervention diverged from the "America First" approach often associated with the White House. President Milei's advocacy for free-market reforms and spending cuts has resonated with conservative figures in the US, and he has met with former President Trump, who has publicly referred to Milei as his "favourite president."
Secretary Bessent, who previously worked as a currency trader for George Soros and was involved in speculation against the British pound in 1992, has defended the US's actions. He cited the situation in Venezuela as a cautionary example, arguing that shoring up Argentina as an ally could prevent regional destabilization.
Treasury Secretary's Statements and Transparency
Following the Argentine election, Secretary Bessent posted on social media that the results demonstrated "Peace through Economic Strength is working." More recently, he claimed that "the Argentine economic bridge has now turned a profit for the American people."
The US Treasury Department has not provided specific details to support these claims, including the timeline and scale of its peso purchases or sales, nor any assets pledged by the Argentine government for the swap deal. Analysts have estimated US peso purchases to be around $2 billion.
Criticism and Peso Valuation Debate
The US support has drawn criticism from some Democrats, who have questioned the spending during a period of White House budget cuts and a government shutdown. Some Republican members have also raised questions about the aid's alignment with "America First" objectives.
Secretary Bessent has maintained that the US support for Argentina is not a "bailout" and has promised "no taxpayer losses," further declaring the peso "undervalued." However, many analysts generally contend that the peso is currently overvalued, largely due to support from the Argentine central bank.
The Argentine central bank established trading limits for the peso in April to mitigate currency swings and support efforts to control inflation. However, the bank has spent billions buying pesos to maintain this steady rate, utilizing International Monetary Fund (IMF) funding and depleting foreign reserves. Economists point to a rise in Argentines making purchases in neighboring countries, where their currency has greater purchasing power, as an indicator that the peso's value is being artificially supported.
Economists anticipate that Argentina's central bank may need to adjust its policy to allow the peso to depreciate further to avoid the potential need for additional financial assistance. This situation presents a challenge for Secretary Bessent, given his stated commitment to avoid US losses.