Argentina's big bailout

Treasury Secretary Scott Bessent just gave Argentina an economic “get out of jail free” card.

Today, the US Treasury finalized a currency swap agreement to the tune of $20 billion with Argentina’s central bank. The US has also taken the unusual step of directly purchasing Argentine pesos to boost the national currency and reduce the chaos that has recently marked Argentina’s financial markets.

The White House argues that this move is motivated by straightforward economics: If Argentina’s economy flops, it could kick off a range of economic downstream effects. But there’s an obvious political motivation: President Javier Milei is an international ally of President Trump, and he’s going to have a tough path to reelection if the economy crumbles underneath him. If Argentina is able to get back on track, it could spur Milei to victory and give Trump more influence in Latin America.

A financial longshot

Despite the size of the US government’s wager, there’s no guarantee that the bet will actually turn Argentina’s deeply dysfunctional economy around. The country has a long history of squandering financial lifelines, and has defaulted on or restructured its sovereign debt five times since 1982, according to the Washington Post.

President Milei promised to break that cycle and overhaul the economy when he was elected in 2023, but when his party lost a key vote in early September, it also lost investors’ confidence. The Argentine peso has been in freefall ever since, and has lost over 27% of its value compared to the US dollar this year. More recently, the nation’s treasury burned through $1.8 billion to unsuccessfully prop its currency up.

This isn’t Bessent’s first currency rodeo: All the way back in 1992, when Bessent worked for George Soros, he helped him “break” the Bank of England with steep bets against the British pound, a controversial trade that helped Soros earn roughly $1 billion.

Now, ironically, Bessent is trying to pull off the reverse: save a plunging currency from complete collapse while fending off the wave of bets against it.—LB