The US bet big on saving Argentina

US Treasury Secretary Scott Bessent is the main man tasked with selling financial markets on some of President Donald Trump’s riskiest economic gambles: sudden global tariffs, trade talks with China and preparations to appoint a new leader at the US central bank.

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

The US entered the scene in mid-September, reacting to a slump in the peso – Argentina’s currency – that officials feared could endanger Trump ally President Javier Millay and his party in the upcoming midterm elections.

Bessent said the US would do whatever it takes to stabilize the situation, calling the country a key ally in the region.

Politically, the US intervention – which included purchases of the peso and the establishment of a $20bn (£15bn) currency swap line giving Argentina’s central bank access to dollars – was a success for Milei.

His party not only managed to shake off losses in the by-elections, but also worked its way up, strengthening his position.

But whether the US intervention in the country will be a financial success is another matter.

The peso has fallen about 30% this year, including about 4% in the past month. The drop came despite U.S. commitments — and a modest pick-up since the election.

This is an indication of continued risk. At the end of the day, the US may end up holding a pile of pesos worth far less than they originally did.

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

Millay has endeared himself to conservatives in the US with his embrace of free-market reforms and radical spending cuts. He has met frequently with Trump, who has called him his “favorite president.”

But the U.S. has rarely offered financial bailouts to other countries — especially in a case that didn’t pose broader risks to financial stability — and outright purchases of struggling emerging market currencies are unprecedented, said Brad Setser, a senior fellow at the Council on Foreign Relations.

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

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

Bessent famously took part in speculating against the British pound in 1992. At the time, investors betting that sterling was overvalued were said to have crushed the Bank of England with their heavy selling.

This time, Bessent finds himself on the opposite side of a similar gamble. He defended his moves by invoking the specter of another South American country, Venezuela, and argued that failure to strengthen Argentina as a US ally could lead to destabilization in the region.

“These results are a clear example that the Trump administration’s policy of peace through economic strength is working,” Bessent wrote on social media after Argentina’s recent election.

On Wednesday, Bessent posted again to say, “Argentine’s economic bridge is now profitable for the American people.”

The U.S. Treasury Department did not respond to inquiries seeking further details.

But it is silent on key information needed to assess Bessent’s claims – including the timeline and scale of its peso purchases – or sales – and what, if any, other assets the Argentine government has pledged to secure the swap deal.

Analysts have estimated that the U.S. has bought about $2 billion worth of pesos so far — hardly an earth-shattering number.

But Democrats criticized the aid at a time of White House spending cuts and an ongoing government shutdown, accusing Bessent of wanting to protect financial “friends” with investments in the country.

Even some members of Trump’s GOP question how the aid fits with the president’s “America First” goals.

Bessent disputed any characterization of US support for Argentina as a “bailout”, promising there would be no “taxpayer losses” and even declaring the peso “undervalued”.

But while this may be true for short-term trading, this view is not universally accepted.

On the contrary, most analysts say the peso is overvalued, but it is supported by support from Argentina’s central bank, which set trading limits for the peso in April.

Economists say maintaining such restrictions is not sustainable. They cited an increase in Argentines traveling to make purchases in neighboring countries, where their money travels further, as one sign that the peso is being held artificially high.

Argentina’s central bank insisted it was committed to the trading range, which was intended to protect the country from price-destabilizing currency swings and support Milei’s efforts to control inflation.

But it has already had to spend billions buying pesos to keep the currency stable, using up funding from the International Monetary Fund (IMF) and tapping into its foreign reserves, which are key to paying down debt obligations.

Economists say they expect the bank to change its policy to allow the peso to fall further – or the country risks needing new aid.

This choice presents a dilemma for Bessent, given his promises to protect the US from losses.

“Does the US agree to provide support to Argentina so that Argentina can defend the peso at this level?” asks Mr. Setser. “Bessent has to decide, in a sense, whether to double down … or whether he has to let the peso correct and admit that his intervention was a bridge to the election.”

The peso fell sharply ahead of the interim periods as businesses and households in Argentina rushed to trade the currency for dollars.

People wanted to protect themselves, remembering the way the currency crashed in 2019 after the election loss of former president Mauricio Macri, who was also known for economic reforms, says Joaquin Baguez, managing director of Buenos Aires-based Grit Capital Group.

“Every single person I spoke to wanted to buy dollars … they have very fresh memories of it,” he said, describing the run as a “crisis of confidence.”

Mr. Bagües says demand for dollars has decreased since the election.

But the peso has not experienced the kind of sustained relief seen in other assets, such as bonds or the stock market, which jumped more than 20% the day after the election and have continued to climb.

As Argentine companies begin tapping international loan markets again after being frozen before the election, analysts say they expect U.S. banks to remain cautious about lending to Argentina, despite Bessent’s push to arrange an additional $20 billion in private financing.

And Mr Bagües says there are too many political issues ahead to predict what will happen to the peso.

Catherine Exum, co-head of sovereign research at Gramercy Funds Management, suggested the peso could rise “in the medium term” if the government is able to continue progress on economic reforms.

But, she adds, “there’s a lot that needs to be done between now and then.”

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

“Bessent might say one thing, but I think the economic reality might force them to be a bit more flexible in terms of currency management,” he says.