For a president who prides himself on putting America first to throw a massive lifeline to Argentina, a country led by Javier Milei, a fierce opponent of bailouts, is doubly jarring, but that is just what has happened.
The Treasury has finalized a $20 billion swap line with Argentina’s central bank. In practice this means lending Argentina up to 20 billion badly needed greenbacks (without, conveniently, any requirement for congressional approval: The same maneuver was adopted by the Clinton administration as part of the Mexican bailout in 1995). Any such loans are collateralized with Buenos Aires’s unloved pesos. The Treasury has also been buying them in the markets to help prop up the price. All this is intended to head off a broader panic — as it was, the sell-off was not confined to the currency — that might lead to default of Argentina’s dollar-denominated debt and, possibly, set off a panic beyond its borders. To reinforce these efforts, the Treasury wants to round up $20 billion in additional finance from the private sector, sovereign wealth funds, and the like.
Whether Milei could or should have headed all this off by replacing the peso with the dollar after his election is a separate debate, as is the question whether he should dollarize now. It is, however, undeniable that the underlying cause of this crisis is that, as part of his effort to crush inflation, Milei’s managed depreciation of the peso has been below the rate at which prices were increasing. This meant that Argentina’s currency has become increasingly and artificially overvalued, anathema surely to a president caricatured as one of those elusive market fundamentalists we hear so much about.
But Milei is more pragmatic than he lets on. Taking a much-needed chainsaw to Argentina’s bloated and corrupt Peronist state created immense hardship in a nation where life was, for millions, already far from easy. A rapidly falling inflation rate was essential politically, as well as economically, as a demonstration that the pain would be worth it. Milei’s popularity held up for a long time, as inflation fell from nearly 13 percent a month just before he took office to a monthly 2 percent today — still very high, but a huge decline. However, the peso’s strength was a hostage to fortune, leaving it vulnerable, given Argentina’s skimpy hard currency reserves, to a drastic fall should confidence fade.
That change of sentiment was set off in early September by, above all, local elections in Buenos Aires province, a Peronist stronghold, to be sure (and home to around 40 percent of the national electorate) but one in which Milei’s opponents performed better than expected, helped, in part, by a scandal within the administration, which has hit Milei’s popularity well beyond the province. The peso came under selling pressure, which was accelerated by fears that a devaluation would lead to a fresh inflationary surge, the last thing Milei needed weeks before the critical midterm elections on October 26.
The vote will be more than a symbolic referendum on Milei’s remarkable progress. Inflation is down, poverty is down, regulations are down, growth has returned, and Argentina’s perennial budget deficit may have been replaced by a small surplus. However, the emergency decrees Milei has used to push through his reforms will have expired by year end. His party, the LLA, and its allies are heavily outnumbered in the legislature where it will need to win a much more significant presence if Milei’s momentum is to be preserved, or at least not reversed. Donald Trump has said that if the midterms go wrong, “We’re gone.”
That could be premature. Milei might bounce back from poor elections, but if he does not, it would be a disaster for Argentina and, for the U.S., a major setback in its own hemisphere. Milei has shed the “Global South” orientation of his Peronist predecessors, canceled plans to join the BRICS grouping, and aligned Argentina closely to the U.S. He has been a robust, unapologetic advocate of Western values and free market economics, a rare species in Latin American politics. He is establishing defense ties with NATO. Should Milei be succeeded by a Peronist, China, which has taken a keen interest in Argentina and its resources, will pounce.
Milei’s pragmatism has outweighed his dislike of the Beijing regime. Argentina cannot currently afford to alienate an important trading partner, even if it is, as Milei has previously (and correctly) pointed out, run by “thieves” and “murderers.” Argentina still participates in China’s Belt and Road Initiative and maintains other economic ties with Beijing, including a $18 billion swap line between the Chinese and Argentinian central banks, which has been a key source of hard currency. Argentina also continues to honor the 50-year lease under which China operates a suspicious base for “space research” in Patagonia.
Extending money to Argentina is, as generations of infuriated creditors have discovered, extremely risky. But if Treasury Secretary Scott Bessent’s lifeline gives Milei enough breathing space, it should attract other cash, starting with that second $20 billion, giving a fresh tailwind to reforms that could transform Argentina into a prosperous, powerful American ally and a beacon in the region. This would inevitably mean a sharp diminution of Chinese influence in a country that is not only the eighth-largest in the world but also resource-rich — oil, gas, soy, grains, copper, lithium, fashionable rare metals, and more besides — and located where the Monroe Doctrine’s writ once ran. The administration has made a big gamble, but it was right to do so.