Trump’s Risky $20 Billion Bet: A Bailout for Argentina’s President

This week, Treasury Secretary Scott Bessent had a stern message for New York City’s mayoral candidate, Zohran Mamdani: should the city ever seek a federal bailout under his leadership, the Trump administration’s answer would be a resounding ‘Drop dead.’ Those were the exact, blunt words Mr. Bessent used during an interview on Fox Business. However, the story is remarkably different when it comes to Argentina. In a striking contrast, the Treasury Department has been actively involved in stabilizing Argentina’s struggling economy. On Wednesday, Mr. Bessent officially announced that the United States was prepared to offer a substantial $20 billion lifeline to the South American nation. These actions are clearly designed to strengthen the position of Argentina’s embattled president, Javier Milei, a leader whom President Trump views as a close political ally. This decision plunges the Trump administration deep into the tricky realm of bailout politics, a territory traditionally shunned by Republicans. By deploying America’s economic influence to potentially sway another country’s electoral outcomes, the president is effectively linking the United States’ reputation to Argentina’s long-standing financial struggles, characterized by rampant inflation and crippling debt. Unsurprisingly, this move has drawn sharp criticism from American agriculture groups. Their members have already been significantly impacted by Mr. Trump’s ongoing trade disputes with China and are themselves desperately awaiting economic assistance. Following Mr. Trump’s tariffs on Chinese imports, China ceased its purchases of American agricultural products, including vital soybeans. This shifted their demand to Brazil and Argentina, where soybeans are now more affordable due to China’s retaliatory tariffs. This market disruption has ignited widespread anxiety among rural American farmers, who fear an impending agricultural crisis. The American Soybean Association, a prominent lobbying group advocating for farmer relief, described the current sentiment as ‘overwhelming frustration.’ They highlighted that Argentina recently lowered its own export taxes, enabling it to sell even more soybeans to China. This move further undermines American farmers, who are already grappling with burdensome Chinese tariffs. Caleb Ragland, president of the American Soybean Association, articulated the farmers’ dismay: ‘U.S. soybean prices are plummeting, harvest is in full swing, and instead of news about a trade agreement with China, farmers are reading that the U.S. government is providing $20 billion in economic aid to Argentina.’ For farmers like Mr. Ragland, extending a bailout to Argentina, a nation directly competing with American soybean exports, feels profoundly unjust. On Thursday, Mr. Trump stated his intention to divert some of the government’s tariff revenues to ‘our farmers,’ promising to ‘make sure our farmers are in great shape.’ Leading Democrats have also fiercely criticized the Argentina bailout, openly accusing Mr. Trump of engaging in cronyism. In a scathing letter to Mr. Bessent, Senator Elizabeth Warren of Massachusetts, the ranking Democrat on the Senate Banking Committee, expressed her profound concern: ‘When Americans are grappling with the rising costs of groceries, rent, and credit card debt – and as this administration slashes funds vital for affordable healthcare for millions at home – it is deeply alarming that the president plans to deploy substantial emergency funds to artificially boost a foreign government’s currency and financial markets.’ Argentina’s economy, already plagued by decades of instability, has recently seen its currency, the peso, plummet amidst growing doubts about President Milei’s control. Just last week, the central bank spent over $1 billion in an attempt to stabilize the peso, trying to maintain its exchange rate against the dollar below a limit agreed upon earlier this year with the International Monetary Fund in a separate $20 billion deal. This U.S. aid aims to shore up confidence in Argentina’s economy and strengthen President Milei’s standing, especially after his party suffered a significant defeat in recent local elections and with crucial legislative elections on the horizon next month. President Trump openly regards Mr. Milei, a self-proclaimed radical libertarian, as a key political ally, famously calling him his ‘favorite president.’ Notably, Mr. Milei was one of only two world leaders present on stage during Mr. Trump’s inauguration. The precise details of this financial support are still being ironed out between Mr. Bessent and his Argentine counterparts. However, analysts warn that the arrangement could expose American taxpayers to considerable risk. Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, remarked that the ‘sheer size’ of the bailout immediately ‘raised eyebrows.’ What makes this deal particularly unusual is the apparent lack of traditional conditions, such as mandates for spending cuts or foreign exchange policy adjustments, which are standard practice for loans from organizations like the International Monetary Fund. She cautioned that the ‘U.S. is venturing into a situation for which it appears to have no clear exit strategy.’ Argentina’s history with debt repayment is far from stellar, marked by numerous defaults that have resulted in substantial losses for investors. As a recurring defaulter, the nation has frequently sought assistance from the International Monetary Fund, making it both the most common recipient of the fund’s bailouts and its largest single debtor. Eswar Prasad, a Cornell University professor and former senior I.M.F. official, highlighted the concerns: ‘Currently, it’s challenging to build a compelling economic argument for the kind of unconditional support the Trump administration is contemplating for Argentina. What’s even more astonishing is the administration’s apparent readiness to risk American funds on this proposed bailout.’ While many investors anticipate that the U.S. bailout will temporarily stabilize Argentina’s financial markets and halt the currency’s decline, they largely view it as a short-term solution. This implies that any American investments could be jeopardized if Argentina’s economic conditions worsen further. Brad Setser, a senior fellow at the Council on Foreign Relations, drew parallels between this potential loan and the $20 billion lifeline the United States extended to Mexico in 1995. However, he emphasized that Argentina’s track record of defaulting on its debts makes this current offer inherently more perilous. Mr. Setser bluntly stated, ‘You’re essentially throwing money at a country that has already depleted its borrowing capacity with the I.M.F.’ Of course, Mr. Trump isn’t the first U.S. president to face scrutiny for offering loans to a foreign government. President Bill Clinton encountered significant political backlash for his administration’s $20 billion bailout of Mexico in 1995. However, Clinton was ultimately proven right when Mexico, having collateralized the loan with its oil exports, successfully repaid its foreign creditors, and the peso’s freefall was stopped. Lawrence H. Summers, who served as Treasury secretary during the Clinton administration, noted that Argentina’s strategic importance to the U.S. is not as clear-cut as Mexico’s. He expressed uncertainty regarding the Trump administration’s true objectives in propping up Argentina’s economy. Summers underscored the differences: ‘This situation is vastly different from Mexico. There’s no shared 2,000-mile border, no major systemic risk, and Argentina is already burdened by substantial pre-existing debts, including those owed to the I.M.F.’ Mr. Bessent defended the support for Argentina, pointing to the country’s vast reserves of critical resources like lithium and its efforts toward what he considers essential fiscal reforms. He controversially asserted that the economic troubles faced by Argentina were, in part, a consequence of policies championed by lawmakers like Senator Warren. In a social media post, Mr. Bessent sharply countered, ‘Few should be surprised by Senator Warren’s self-pitying rendition of ‘Don’t Cry for Me Massachusetts.’ The destructive economic policies she has advocated since 2013 are on par with the failed leftist agenda of the Argentine opposition.’