Is Argentina back to its bad old ways?
Based on this delicately worded tweet by Treasury Secretary Scott Bessent, they look like they need a new bailout.
Argentina is a systemically important U.S. ally in Latin America, and the @USTreasury stands ready to do what is needed within its mandate to support Argentina.
— Treasury Secretary Scott Bessent (@SecScottBessent) September 22, 2025
All options for stabilization are on the table. 1/4
This, after election Javier Milei president of Argentina on the promise of free market reforms.
Milei did make a lot of progress -- cutting the size of government and ending ridiculous regulations. He dropped capital controls so people could move their money around. His also was one of the few, the very few, countries that didn't get hit with U.S. tariffs on the grounds that it was "ripping us off" as President Trump likes to put it, either on tariffs of its own or non-trade barriers. They looked, they found nothing, and today, it's pretty nice to be able to buy beautiful Bartlett pears and Malbec wine from Argentina at reasonable prices at the local groceries.
Gorgeous pears and oranges from Argentina. pic.twitter.com/mXuTMVFpdl
— Monica Showalter (@mmshowalter1) July 29, 2025
O.K., fine. And it's a wonderful thing to have an ally like Argentina on other matters, too. President Milei, in fact, is arguably the best post-Peron-era president the country has ever had -- which should say something.
So why was his country's currency and stock market crashing -- to the point that it looks like it's going to need a bailout from the U.S.? I've been watching this for something like a week and am sighing a lot about the picture.
This market newsletteer thinks the country needs to let its peso float freely, which apparently it doesn't.
What is happening in Argentina?
— The Kobeissi Letter (@KobeissiLetter) September 22, 2025
In 24 hours, Argentina's stock market COLLAPSED -10%, with the Argentine Peso now down -99% in 10 years.
Today, the Trump Administration offered a "lifeline" to Argentina, sending stocks surging +8%.
Can Argentina be saved?
(a thread) pic.twitter.com/N0bLJdrt5U
While that's a free market solution, it isn't the best one for Argentina, which has had plenty of free floats, all of which ended badly. In a free float, the central bank sets the value of the interest rate, depending on how much the government is spending, and the market sets the value of the currency, up or down, depending on performance.
What President Milei needs to do, on the double, is scrap the peso altogether and use the U.S. dollar as Argentina's currency. That was his first and most adamant campaign promise, the one that won him the election, and it's the only solution that will get rid of every shenanigan a central bank can figure out to create a crisis.
Under dollarization, the value of the currency is fixed, and the market sets the interest rate, depending on how many dollars are out there. The government cannot spend itself into a storm and hope a devalued currency will pay it off -- which is kind of what they are doing now. It has to live within its means, because it can only spend money if the cash is there. No cash, no spend.
While I'm not against a bailout or swap or loan for Argentina at this late date -- we do need to look out for our most valuable allies, and I am sure Argentina is being very helpful on the strategic front against the drug dealers running Venezuela, I do agree with the newsletter writers that any help we give should be accompanied by structural reforms.
Dollarization is that reform, and nobody knows this better than Treasury Secretary Bessent, who gets it on economics.
An accompanying reform they should enact with dollarization is the reintroduction of the Chilean Model for private retirement savings, first developed by economist Jose Pinera. That would build a big bank of capital reserves and Argentina (could have use of that money to help develop the country and keep their government going. They did have this model, but socialists stole the cash in them several years ago, replaced it with the government's idea of a pension, and nobody has brought it up since, not even Milei. Well, it's time to bring it up, and once again, Bessent knows how this works and why it's valuable.
Johns Hopkins University professor of economics, Steve Hanke, has been warning them for several months now that real reforms start from the foundation, from the monetary picture -- and that's where Argentina right now is having problems.
Argentina's peso is tanking. It has depreciated a stunning 12% against the Greenback in the last month.
— Steve Hanke (@steve_hanke) September 21, 2025
If that wasn't bad enough, Pres. Milei has burned through more than $1 billion in scarce foreign reserves to prop up the peso this week.
ARGENTINA’S ONLY SOLUTION =…
Hanke was urging them to dollarize first before doing anything else but they'e seemingly ignored it, perhaps daunted by Argentina's mountains of socialist debt, which they have hoped they could pay off in devalued coin first. That works so long as the market is willing to go along, but with recent stock and currency plunges, it's obviously not going along.
They need to dollarize before this problem gets any worse -- and a whole lot of leftists get elected at the next election, which is a pretty real problem. It's not hard to do (Ecuador did it on a 'hold my beer' approach), it can be done by just declaring it so, it costs the U.S. nothing (the U.S. actually makes small fees through a monetary phenomenon known as seigniorage) They were warned, and they didn't take action.
Let's hope they can wriggle out of it and put themselves on a sustainable path to development so we don't hear from them in this way any more. All we want to hear from them is that they have gotten crazy rich. Milei is an alternative to the socialists who have trashed the continent so badly. He must not waste this opportunity.
Image: Pixabay / Pixabay License