9/23/25 | |
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U.S. Treasury Secretary Scott Bessent made an unusual intervention in Argentina’s financial crisis Monday, pledging to “do what is needed” to support the country and adding that “all options for stabilization are on the table.” Bessent’s series of posts on X (formerly Twitter), which came just 15 minutes before markets opened in Argentina, triggered a sharp rebound in Argentina’s currency and sovereign debt, both of which had sold off in recent weeks. | |
The trouble began earlier this month when President Javier Milei’s party suffered a landslide defeat in provincial elections in Buenos Aires, which were closely watched as a bellwether ahead of next month’s national midterms. That result, which came amid a damaging corruption scandal, shook investor confidence in Milei’s ability to continue pushing through his program of austerity and libertarian reforms. | |
Milei’s agenda has had some success in taming rampant inflation, which has come down from a peak of 289 percent in April 2024 to 34 percent in August, on an annual basis. But as part of its efforts to keep costs down, the government had kept the peso artificially elevated so that imports would be more affordable, which prevented Argentina from building up its foreign exchange reserves. When it came time to prop up the currency in response to the recent sell-off, authorities lacked the reserve firepower to do so. | |
Bessent’s intervention has now given Milei some short-term relief, but the motivations for it are transparently political rather than economic. While Bessent called Argentina a “systemically important U.S. ally,” its economy is not systemically important to the global financial system. In fact, the country has been mired in economic crises for decades. | |
While the U.S. has helped Argentina in the past through the IMF, this appears to be the first time it is intervening directly in Argentina’s economy. Even the tool that Bessent suggested using, the Exchange Stabilization Fund, is only rarely used to support foreign currencies, all in response to crises like the 2011 earthquake that devastated northern Japan and the 1994 Mexican peso crisis. | |
By using it now to help Milei, the Trump administration is attempting to shore up his political standing ahead of congressional midterms on Oct. 26. However, Milei’s flagging support has more to do with the corruption allegations swirling around his family members and senior figures in his administration than his program of economic shock therapy. | |
Most Argentines were willing to absorb some short-term economic pain if it mean a long-term solution to the crisis. But as James Bosworth wrote in his WPR column last week, when people are struggling, “alleged embezzlement on the part of the president’s lawyer and sister is exactly the sort of scandal that will bring electoral punishment. | |
A loss for Milei in next month’s midterms is likely to trigger an even deeper rout for the peso than what transpired this month. That’s because investors’ biggest fear is that the opposition Peronists will return to power and undo many of Milei’s reforms. If that happens, Trump and Bessent will be forced to either renege on their pledge of assistance or spend billions of dollars propping up a crisis-ridden foreign economy, just to keep an ideological ally afloat. | |