US Treasury Secretary Scott Bessent suggested that the US is willing to back an Argentine rescue package, given that the Southern country is facing an extreme market crisis.
Bessent said the Trump administration was weighing multiple paths to help steer the country from its current economic turmoil, including buying Argentina’s currency or sovereign debt, according to comments made this week on X.
These remarks might come as relief for Argentine President Javier Milei, a right-wing supporter of President Donald Trump, who is facing mounting obstacles to his economic program.
Argentina’s economic crisis, market panic
Argentina has been dealing with increased market volatility caused by a mix of domestic political swings and a fast-weakening currency.
The immediate reason for market turbulence was a surprising election outcome in Buenos Aires, which sent shockwaves through financial markets, according to the Financial Times.
Milei’s free-market policies have received criticism, exacerbated by a corruption scandal and a string of congressional defeats, raising investor fears about his capacity to navigate the crisis.
The Argentine peso has fallen, approaching the bottom limit of its exchange rate band, leading the central bank to drain its foreign currency reserves at a rapid pace.
In just three days, the central bank spent $1.1 billion to keep the currency stable.
When fears mounted that the government would be unable to finance its debt burdens in the near term, prices of Argentina’s sovereign bonds collapsed.
However, after Bessent’s remarks, bond prices bounced back a little, with bonds maturing in 2029 and 2035 gaining 6 to 7 cents on the dollar.
The turmoil in the market has elicited fears that Argentina does not have a sufficient arsenal of tools to defend against the fallout without help from international lenders.
US Treasury’s role: a potential lifeline for Argentina
Bessent stressed that the US Treasury is dedicated to assisting Argentina, citing the country’s status as a systemically important US ally in Latin America.
He also said that all options for stabilisation are on the table, which may include using swap lines, making direct currency purchases, and acquiring US dollar-denominated sovereign debt through the Treasury’s Exchange Stabilisation Fund (ESF).
The ESF, founded in 1934, is a fund managed by the US Treasury Secretary that owns approximately $22 billion in marketable securities.
It has already been used to intervene in global markets, such as during the 1995 Mexican “Tequila Crisis,” and is intended to stabilise exchange rates and sustain financial institutions during market downturns.
Although Bessent didn’t outline specific actions, he reinforced a potential custom-made aid package for Argentina to stabilise the peso and regain more investor confidence.
This is a pivotal decision because the Argentine markets have been under aggressive pressure, with Milei failing to advance in the elections and the serious price that the country’s foreign currency reserves have had to bear in recent weeks.
US intervention wouldn’t be without precedent, but this would be a deepening of US engagement in Argentina’s economic crisis.
Milei’s strained relationship with the IMF
Milei has previously requested major financial support from the International Monetary Fund (IMF), receiving a $20 billion loan this year.
However, Argentina’s relationship with the IMF has deteriorated as the government fails to meet crucial benchmarks for rebuilding its foreign exchange reserves.
Argentina currently accounts for roughly half of the IMF’s $125 billion in outstanding lending.
Because of the IMF’s limited ability for additional help, Milei has looked into other options, including the prospective US assistance suggested by Bessent.
In an effort to relieve pressure on Argentina’s foreign reserves, Milei’s administration has temporarily suspended export tariffs on grains, which are a major source of foreign currency for the country.
The measure is intended to encourage exports and increase the central bank’s dollar reserves, providing a viable short-term solution to the situation.
Looking ahead: a crucial meeting with Trump
The meeting next Tuesday between Bessent, Milei, and President Trump in New York indicates the urgency of the situation.
This top-level meeting is likely to further shape the parameters of US assistance to Argentina in the months to come.
Bessent’s comments indicate the Trump administration is poised to jump in with assistance if needed, given that Argentina’s economy is in shambles and the IMF is already at its limit when it comes to providing further help.
And as Argentina struggles to regain control over a volatile economy, its fortunes may depend on the readiness of the US and the world’s lenders to keep sending assistance.
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