The United States, through Treasury Secretary Scott Bessent, has taken an assertive stance in supporting Argentina’s economy, particularly its currency, the peso. This intervention, involving currency swap lines and direct peso purchases, was aimed at stabilizing the situation following a sharp decline in the peso’s value. The move was partly motivated by the desire to bolster President Javier Milei, a key ally of the current US administration.
Politically, the intervention appears to have served its immediate purpose, helping Milei’s party secure a stronger position in recent midterm elections. However, the financial viability of this strategy is far from certain.
Despite US commitments, the Argentine peso has continued to depreciate significantly this year, raising concerns about the potential for substantial losses for the US. This intervention is particularly noteworthy given the White House’s usual “America First” approach, as direct support for an emerging market currency is considered unprecedented.
While Bessent maintains that the support is not a “bailout” and that there will be “no taxpayer losses,” analysts largely disagree on the peso’s valuation, believing it to be overvalued. The Argentine central bank has been spending heavily to maintain the peso’s trading band, depleting foreign reserves crucial for debt payments.
The situation presents a complex dilemma for Bessent. He must decide whether to continue supporting the peso, potentially exposing the US to further risk, or allow the currency to adjust, acknowledging the intervention’s role as a temporary measure until the election. The lack of transparency regarding the scale of peso purchases and any collateral provided by Argentina further complicates an accurate assessment of the situation.
Economists suggest that if Argentina fails to implement further economic reforms and continues to defend the peso’s current level, it may eventually require another bailout. This scenario would put Bessent in a difficult position, given his assurances about protecting US taxpayers.
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