Go big or go home
America doubles down on Javier Milei
But there’s a catch
The Trump administration is raising the stakes in its unprecedented bet on President Javier Milei of Argentina.
Last week Scott Bessent, America’s treasury secretary, finalised a $20bn swap line and the direct purchase of Argentine pesos.
Then, on October 15th, he said the Treasury is also working on a “private-sector solution” that would funnel another $20bn to help with Argentina’s “upcoming debt payments” and announced it would buy even more pesos.
Both governments hint that a trade deal could be announced any day.
These extraordinary actions have bolstered Argentine bonds and propped up its currency, which has been under heavy pressure (see chart).
But the broader aim is, unashamedly, to help Mr Milei win the midterm election on October 26th.
The United States is apparently making the measures conditional on his success.
In a meeting in the White House with Mr Milei on October 14th, Donald Trump said that “If he doesn’t win, we’re gone.”
Argentine stocks and bonds immediately plunged.
Mr Milei’s team hurriedly tried to calm markets by claiming that what Mr Trump really meant was that he would walk away only if Mr Milei lost his re-election bid in 2027.
Yet it is far from clear that spin is correct.
The next day Mr Bessent sought to soothe markets, saying that support is “not election-specific, it is policy-specific”.
That, along with the new peso purchases, bought some calm.
Still, it is Mr Trump, who famously dislikes losers, who will ultimately decide whether the support continues.
Markets are confused at best.
The uncertainty limits the calming effect of the purported $40bn in backing, none of which has yet been used.
That puts Mr Milei under extreme pressure to win.
Though he has sharply reduced inflation and poverty since he came into office in late 2023, his party could easily get fewer votes than the Peronist opposition.
A series of corruption scandals have alarmed voters.
His dogmatic approach has alienated potential allies.
Attempts to keep the peso strong even after floating it within a band with the backing of a $20bn IMF bailout in April have had mixed results.
It helped to lower inflation, but hamstrung efforts to accumulate foreign reserves.
In recent weeks Argentina has spent about $3bn of precious reserves trying to stop the peso crashing out of the band.
Those efforts have also sent overnight interest rates soaring past 100%, a huge drag on economic activity.
A big electoral loss could trigger a bloodbath in markets, which fear Mr Trump will walk away.
Wonks also worry that all this risks wasting American money, especially as the peso looks overvalued.
If it falls the US Treasury, which is buying the currency directly, will face losses.
And because the Treasury presumably wants its swap line to be paid back in dollars, it is really an emergency loan to a serial defaulter, points out Brad Setser of the Council on Foreign Relations, a think-tank.
Details of the new $20bn initiative to help with debt payments are scant.
Mr Bessent suggested that private banks and sovereign funds are interested.
Perhaps, but probably only at the entreaty of the Trump administration.
Sovereign-wealth funds usually avoid bonds classed as “junk”, as Argentina’s are.
Mr Trump could still win his bet.
If Mr Milei pulls off a strong result in the election, pressure on the peso is likely to ease, at least for a while, as the spectre of the spendthrift Peronists recedes.
Markets may regain their appetite for Argentine bonds.
This would help the government repay the billions due to creditors in 2026.
If the Trump administration were smart it would then push Argentina to fully float the peso.
That would help the country to build its own dollar reserves, reducing the need for American support.
Posters claiming that he is selling the country to Mr Trump have sprung up.
His party is also struggling to explain a late change of its candidate to voters in Buenos Aires province.
The ballot papers still bear the name of the old one, José Luis Espert, who dropped out over alleged links to drug-trafficking, which he denies.
The electoral authority says it is too late to reprint ballots.
That is one more uncertainty in an election that is full of them.
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