USA and the World Bank Give a Boost to the Argentine Economy
Scott Bessent, the United States Treasury Secretary, has announced that Argentina is a “systematically important ally in Latin America” and went on to say that “all options are on the table” and “the U.S. is ready to do what is needed” to aid Argentina in stabilising its escalating financial woes. Recent heavy regional election losses suffered by President Javier Milei and a corruption scandal unnerved financial markets, placing in doubt the future of President Milei’s free-market and cost-cutting agenda. Such was the alarm felt by investors that it sparked off a run on the peso last week, which was threatening a devaluation of the currency.
Currently, President Milei heads the only Latin American economy that is allied to the United States, and Secretary Bessent was adamant that speculators would be defeated by confirming talks were taking place to provide a swap line of USD 20 billion to Argentina, and confirmed they were prepared to buy all the country’s dollar debt. Secretary Bessent went on to say that the “White House would be resolute in support for allies of the US” seeking to calm a market crisis engulfing the Argentine economy. Indeed, the peso on Monday of this week rose by 10% before rebounding to its level before the regional election loss, and dollar bonds issued by Argentina have edged higher following the latest intervention by Secretary Bessent.
However, the current calm pervading the Argentine markets is not guaranteed as Argentines will vote in mid-term elections next month on Sunday, 26th October, and there is further alarm for investors as President Milei may lose his re-election bid in 2027. The opposition is likely to be the governor of Buenos Aires province, Axel Kicillof, who has ambitions of his own to be President and is emboldened by his recent wins in the provincial elections, but his economic views are unorthodox to say the least, and his record as described by political commentators is alarming.
Further help from Secretary Bessent when his backing turned out to be key in Argentina securing a USD 20 billion loan back in April. However, the central bank has in recent weeks stepped in to defend a weakening peso, with investors removing money from the country with worries about the government’s ability to keep the peso steady. When President Milei won the election in 2023, he pledged to bring runaway inflation under control, along with drastic spending cuts, and a stable peso was and is critical to that pledge. As a result, the Argentine central bank has in recent weeks stepped in to prop up the peso to the tune of USD 1.1 billion, which has severely depleted its holdings and put the country in an unenviable position when it comes to repaying its debt.
The intervention by President Trump via Secretary Bessent has proved to be timely. Analysts say data show that Argentina is a serial defaulter when it comes to debt repayment, but for now, markets are calm, and thoughts of default on repayments of debt have subsided. However, President Milei has very few seats in Congress, and any gains will be a boon, and the backing of the United States in such a forceful manner may well boost his flagging polling. However, if the mid-term elections go against President Milei and he has lost control of Congress, making it long odds on his re-election in 2027, experts in this arena suggest that even the might of the U.S. President and his dollars will not save him, and the markets may once again become unsettled regarding the economy of Argentina.
