Argentina's economy is in crisis. This is not unusual, considering the country's more than 65 years of economic turmoil, during which the economy weaved between hyperinflation and default.
Argentina's self-described "radical libertarian" President Javier Milei, elected in 2023 on a platform to fix the economy, was making spectacular progress in that area. He brought inflation way down, cut spending and reduced the deficit, and began to implement structural reforms that would eventually lead to a more prosperous nation.
But Milei is currently dealing with a currency crisis that has seen the peso in free fall and questions raised about his stewardship of the economy.
It hasn't helped that Milei has suffered several electoral setbacks in recent months, including disastrous provincial mid-term results. Taken together, a weakened Milei is losing the confidence of the international financial community upon which Argentina depends to finance its massive debt to the International Monetary Fund.
“The latest Argentina peso crisis was triggered by lost market confidence in Milei’s ability to perform well in upcoming elections after a number of political setbacks,” said Mark Sobel, a former longtime U.S.Treasury official. Sobel is currently the U.S. chairman of the Official Monetary and Financial Institutions Forum.
“Milei’s program of tough fiscal and monetary tightening has been the right medicine to stop Argentina’s habitual over-borrowing, which had caused decades of hyperinflationary bouts and serial defaults," Sobelk added.
Milei has done a good job bringing Argentina back from the brink of default, but he has dropped the ball on managing the currency.
“Milei’s weak spot was the peso’s overvaluation due to a stubborn unwillingness to let the peso find a market-clearing level,” Mr. Sobel said. “That glaring weakness has now come home to roost.”
Donald Trump considers Milei a soulmate and will meet with the Argentine president today to discuss a bailout.
Treasury Secretary Scott Bessent said that the United States is prepared to offer loans to Argentina’s central bank, direct currency purchases and purchases of U.S. dollar-denominated Argentine government debt from Treasury’s Exchange Stabilization Fund to keep Argentina’s economy afloat. The value of Argentina’s currency, the peso, has fallen in recent weeks amid concerns about Mr. Milei’s political grip on government.
“Argentina is a systemically important U.S. ally in Latin America, and the U.S. Treasury stands ready to do what is needed within its mandate to support Argentina,” Mr. Bessent wrote on social media.
President Trump has embraced Mr. Milei, whom he has described as his “favorite president,” as a kindred political spirit. Because of their close relationship Mr. Trump has deepened ties between the United States and Argentina, amplifying its strategic significance. Argentina’s economy is increasingly important to the United States as it competes with China for influence in Latin America and scours the globe for strategic minerals such as lithium, which Argentina possesses.
Will it be enough? Milei hopes to right the ship before the national midterm elections next month. To that end, he's pulling out all the stops to stabilize the peso, as the central bank poured a billion dollars into buying pesos. This actually set nervous bondholders on edge, who worry that spending scarce foreign exchange reserves won't be enough to stem the peso run.
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Because Milei is the first Argentina president in a long time to actually give the economy the medicine it needs to eventually flourish, the international community is rallying to his side.
Argentina has already received pledges of more than $40bn in multilateral financing this year as financial institutions sought to strengthen the government and end the country’s long-running cycle of currency devaluations and debt defaults.
The IMF approved a fresh $20bn loan in April, including an unusually large $12bn upfront disbursement, to replenish the central bank’s reserves and help Milei relax currency controls.
However, Argentina has since fallen far short on the IMF programme’s targets for rebuilding hard currency reserves, which Argentina will need in the long run to repay bondholders and stabilise the peso.
This is where Trump and the United States come in. U.S. loans and purchases of the peso can shore up confidence in Milei and the Argentine economy.
“Those of us who defend the ideas of freedom must work together for the well-being of our peoples,” Mr. Milei said on X.
The full Argentina rescue plan will be unveiled after the Trump, Bessent, and Milei meeting at the UN later today.
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