This unprecedented decision by the Trump administration to bail out Argentina directly has more to do with geopolitical considerations than economic ones.
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It seems perfectly fitting that in the same week that Javier Milei launches his new book, La Construcción del Milagro (The Building of the Miracle), Argentina’s zombified economy once again needs a massive bailout, this time directly from the US Treasury Department. News of the bailout came after Argentina’s central bank burnt through $678 million of foreign reserves on Friday trying to support the peso — its largest intervention for a single day since Oct 2019.
On Monday, US Treasury Secretary Scott Bessent announced that the US was standing ready to do what is needed to support Argentina, a “systemically important US ally in Latin America”, registers as a trade partner for the US.
On Wednesday, after meeting with Presidents Donald J Trump and Milei, Bessent provided a little more clarity on what kind of financial support Argentina can expect as the country gets ready to vote in its mid-term elections in October.
Under President Milei, Argentina has taken important strides toward stabilization. He has achieved impressive fiscal consolidation and a broad liberalization of prices and restrictive regulations, laying the foundation for Argentina’s historic return to prosperity. The @USTreasury stands ready to purchase Argentina’s USD bonds and will do so as conditions warrant.
We are also prepared to deliver significant stand-by credit via the Exchange Stabilization Fund, and we have been in active discussions with President Milei’s team to do so. The Treasury is currently in negotiations with Argentine officials for a $20 billion swap line with the Central Bank. We are working in close coordination with the Argentine government to prevent excessive volatility.
In addition, the United States stands ready to purchase secondary or primary government debt and we are working with the Argentine government to end the tax holiday for commodity producers converting foreign exchange.
Needless to say, the news of the Milei government’s latest bailout — its second in just five months — triggered a cacophony of memes on Twitter. A few stand-outs:
This was one of the sharpest observations:
Rich Irony
The irony got even richer when Bessent, the former billionaire hedge fund manager who was a leading member of the firm (Soros Fund Management) whose bet on the Black Wednesday collapse of the British Pound sterling earned the firm over $1 billion, warned on Wednesday that “Argentina has the tools to defeat speculators, including those who seek to destabilize Argentina’s markets for political objectives.”
It is even more ironic when you consider that Milei’s government, with the assistance of the IMF, has enriched the speculator class more than any other Argentine government in recent history, with the possible exception of Mauricio Macri’s (2015-19). Like Macri’s, Milei promoted creative financing, largely through the so-called carry trade, that kept inflation artificially low by keeping the peso artificially high.
Just as with Macri, these policies enriched financial speculators, domestic and foreign, at the expense of the broader economy. As we warned in December 2024, the carry trade was not remotely sustainable and its inevitable unravelling would trigger a new currency and debt crisis, as has happened so many times before. Four months later, the IMF stepped in. Five months after that, it’s the US Treasury’s turn.
This was eminently foreseeable the moment Milei hired the same JP Morgan bankers who had entrapped Argentina into tens of billions of dollars of debt during Macri’s term, to head the most important positions in his administration and central bank. We warned about the possible repercussions in the first month of Milei’s presidency in our post, “Who Is Luis Caputo, Argentina’s New Economy Minister (Who Is Already Making the Economy Scream)?“:
In Spanish, as in English, the word “kaput,” taken from the German “kaputt”, means done for, knackered, wiped out. The surname of Argentina’s new Economy Minister, Luis “Toto” Caputo, is similar, just with a “c” instead of a “k” and ending in “o”, which is probably fitting given that his first dose of economic shock therapy — including a 54% devaluation of the Argentine peso, to bring the official exchange rate closer to the informal “blue” one; a halt on all public works; the freezing of public sector salaries; a sharp rise in taxes, and the elimination of many public subsidies — could wipe out what remains of Argentina’s fragile economy.
Predictably, the package of measures places the lion’s share of the burden on the already buckling shoulders of Argentina’s middle and working classes while the so-called political and economic caste — whom Milei vowed to eliminate during his election campaign — will emerge either largely unscathed or even wealthier.
It took just a year and a half for Argentina’s economy to require another 10-figure bailout — the 23rd of its 209 year history. This one was worth a total of $42 billion, and was provided by the IMF ($20 billion), the World Bank ($12 billion) and the Interamerican Development Bank ($10 billion). Much of that money was delivered upfront, prompting accusations that the IMF was essentially bankrolling Milei’s electoral campaign for Argentina’s mid-terms.
Which is precisely what happened — only that the bank did not roll for quite long enough. Hence the need for a second bailout.
As we noted at the time, many senior members of the IMF staff refused to sign off on the April loan even at the risk of getting fired, presumably because they knew it would never be repaid. Just like the loan in 2018, this one was politically motivated.
They also presumably feared that the Fund, by pressuring the Milei government to remove many of the country’s capital controls, would once again be facilitating another round of massive capital flight, allowing the same speculators who had gorged on the carry trade to get their money out of dodge as the trade unravelled.
One thing that is now clear is that the half lives of economic bailouts of Argentina are growing dangerously short.
US-Style Debt Trap Diplomacy
One last irony: the US is engaging in exactly the sort of “debt trap diplomacy” that it has been accusing China of in recent years, with an important difference: most of the debt in this case is used to enrich financial speculators rather than build actual things for the benefit of the country or its people. It is debt in return for nothing.
As we warned in May, Washington is once again weaponising the IMF to try to reclaim its “back yard”:
Through its lending to struggling economies in Latin America, the IMF is once again helping Washington to reassert its strategic influence in its backyard. It is probably no coincidence that three of the four countries in the region that have outstanding debts with the IMF — Argentina, Ecuador and El Salvador — all have governments that are not only completely aligned with Washington but are also completely on board with Israel’s genocide.
It is also clear that the Trump administration is now meddling directly in Argentina’s political process, just as it has been meddling in Brazil’s by trying to get Trump’s close friend, Jair Bolsonaro, off the hook for his attempted coup in 2022. To that end and at the alleged urging of Bolsonaro’s son, Eduardo, Trump has even imposed 50% sanctions on US imports of many Brazilian goods.
During his address to the UN General Assembly on Tuesday, Brazil’s President Luiz Inácio Lula da Silva gave a powerful defence of national sovereignty:
“[E]ven under unprecedented attack, Brazil chose to resist and defend its democracy regained 40 years ago… Before the eyes of the world, Brazil sent a message to all aspiring autocrats and those who support them: our democracy, our sovereignty are non-negotiable.”
Meanwhile, Milei’s Argentina is more firmly than ever in Washington’s grip. And Washington, through the mouth of Bessent, has a very clear message for the Argentine people — vote for Milei, or else:
I have also been in touch with numerous US companies who intend to make substantial foreign direct investments in Argentina multiple sectors in the event of a positive election outcome.
The Trump Administration is resolute in our support for allies of the United States, and President Trump has given President Milei a rare endorsement of a foreign official, showing his confidence in his government’s economic plans and the geopolitical strategic importance of the relationship between the United States and Argentina. Immediately after the election, we will start working with the Argentine government on its principal repayments.
I will be watching developments closely, and the Treasury remains fully prepared to do what is necessary.
“No Strings Attached”. Yeah, Right.
The obvious next question is: what does the US get out of this?
Senior figures in the Milei government have been making the risible claim that there will be no strings attached to this latest bailout. Even Milei’s strongest supporters are having trouble swallowing that one…
Nick Corbishley 