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US Treasury's $20bn Argentina Gamble Tests 'America First' Policy
U.S. Treasury Secretary Scott Bessent has spearheaded one of President Donald Trump's most unconventional economic interventions-a $20 billion currency swap and direct peso purchases to stabilize Argentina's collapsing currency ahead of critical midterm elections. The move, framed as support for ally President Javier Milei, defies the administration's "America First" doctrine and raises questions about long-term financial risks for U.S. taxpayers.
Political Win, Economic Gamble
The intervention, announced in mid-September as the peso plummeted, included a $20 billion swap line granting Argentina's central bank access to U.S. dollars. While Milei's party secured electoral gains-bolstering his reform agenda-the peso's 30% yearly decline, including a 4% drop in the past month, underscores lingering instability. Analysts warn the U.S. could face losses if the peso's value erodes further, despite Bessent's claims of a "profit" for American taxpayers.
Bessent, a former currency trader known for betting against the British pound in 1992, defended the move as a strategic bulwark against regional destabilization, invoking Venezuela's collapse as a cautionary example. "These results are a clear example that the Trump Administration policy of Peace through Economic Strength is working," he stated post-election. Critics, however, question the alignment with Trump's isolationist rhetoric and fiscal restraint amid domestic budget cuts.
Unprecedented Intervention Sparks Debate
The Treasury's direct purchases of pesos-estimated at up to $2 billion-mark a rare departure from U.S. policy, which typically avoids currency interventions unless systemic risks emerge. Argentina's history of devaluations and defaults, including a 2020 crisis, compounds skepticism. "Is the U.S. willing to double down to defend the peso's artificial level, or will it let the currency adjust?" asked Brad Setser of the Council on Foreign Relations, highlighting the dilemma facing Bessent.
Democrats have lambasted the move as a favor to financial elites with Argentine investments, while some Republicans question its consistency with "America First." Bessent rejects the "bailout" label, insisting the peso is "undervalued"-a claim most analysts dispute. Economists argue the central bank's trading limits, imposed in April to curb volatility, are unsustainable, citing cross-border shopping spikes as evidence of the peso's overvaluation.
Argentina's Fragile Recovery
The peso's post-election rally proved fleeting. While stocks and bonds surged over 20% following Milei's victory, the currency remains under pressure. Joaquín Bagües of Grit Capital Group attributed pre-election panic to memories of the 2019 collapse under former President Mauricio Macri: "Every single person I spoke to wanted dollars-it was a confidence crisis." Though demand for dollars has eased, analysts predict further depreciation unless Argentina relaxes currency controls.
The central bank has burned through IMF funds and foreign reserves to prop up the peso, risking another bailout. Kathryn Exum of Gramercy Funds Management suggested potential medium-term gains if reforms advance, but Anthony Simond of Aberdeen Group expects further declines: "Bessent's optimism may clash with economic reality." The Treasury has not disclosed key details, including the scale of peso transactions or collateral pledged by Argentina.
What's Next: A Policy Crossroads
With private lenders wary of Argentina despite Bessent's push for $20 billion in additional financing, the peso's trajectory hinges on Milei's ability to implement reforms. The U.S. faces a choice: deepen its intervention or accept a weaker peso-testing the limits of its high-stakes gamble.
