By Jim Geraghty
Wednesday, October 15, 2025
Argentina uses the peso. As currencies go, it’s
particularly unstable. And when I write “particularly unstable,” I mean that over the past decade, the Argentinian peso has lost 99
percent of its value against the dollar. For comparison, during the
time period the Syrian pound lost 98.55 percent of its value against the
dollar, and the Syrians were dealing with a 13-year brutal civil war with chemical weapons and ISIS and
every horror under the sun.
The Argentinian peso lost so much of its value for a lot
of reasons: long stretches of high inflation, high government debt (back in
2023, the Argentinian government’s debt equaled 156 percent of the country’s gross domestic product; it
came down to 83 percent last year), corruption scandals, market volatility.
Once a currency has lost a lot of its value, who wants to own a lot of it?
As recently as July, everything seemed to be coming up
roses for the Argentinian economy, with the libertarian-minded Argentinian
President Javier Milei taking a victory lap. The editors of National Review wrote back then:
Argentina’s economy is growing at
7.7 percent, according to the latest year-over-year data. It grew by 1.9
percent in April, the most recent month for which data are available. The
Chinese economy is growing at a rate of about 5 percent per year (if you believe
the official statistics, which there are good reasons to doubt).
Argentina is achieving this
growth not through a strategic industrial policy or a mercantilist trade
policy. It’s achieving it by rolling back the overextended public sector,
slashing the government budget, controlling the money supply, and removing price
controls.
But that editorial warned of unresolved issues lurking in
the not-too-distant future:
Milei will of course still face
challenges. He has enormous damage to clean up. Midterm elections are upcoming,
and one of his signature economic proposals, dollarization, has yet to be
implemented. The powerful Peronist apparatus may still get its revenge.
As summer turned to autumn, Argentina’s politics were
rocked by the claim that President Milei and his sister Karina were involved in
a corruption scheme. From the New York Times, September 6:
While the tape attributed to
[Karina Milei] was innocuous, rallying party members and telling them to stay
united, a separate tape attributed to a different government official suggested
she was profiting from a bribery scheme.
And all of this has emerged just
as she was organizing Milei’s party’s campaign for a crucial midterm vote this
fall — a key test of her brother’s transformative plans for the country.
But just as he has done since
they were children, Mr. Milei, 54, has stood by his sister, denying the
accusations, and there are no signs that her power or influence have weakened.
. . .
A cryptocurrency scandal involving Mr.
Milei and an American consultant has led to accusations that Ms. Milei took
payments for access to her brother even after he became president.
The consultant, Hayden Davis,
said in text messages obtained by The New York Times that “I send $$ to his
sister and he signs whatever I say.” . . .
On September 7, Buenos Aires, the largest and most
populated province in the country, held its provincial elections. The leftist
or Peronist Party won 46 percent and Milei’s won 34 percent, a result that was
interpreted as a “sweeping setback” of Milei and his agenda; the president
acknowledged it was a “clear defeat.”
As The Economist summarizes, international investors
started to fear that Milei’s free-market agenda had been halted, and the
Argentinian government would soon revert back to its bad habits:
The trouble started on September
7th when, with his sister embroiled in a corruption scandal, Mr. Milei badly lost a legislative election in the
province of Buenos Aires. He then suffered a series of stinging defeats in
congress. Markets panicked, worried that this signaled the end of popular
support for his reforms, and the potential return of spendthrift Peronists. A
sharp peso sell-off began, while investors ditched Argentine bonds.
Since April, when the IMF
launched its 23rd program in Argentina, the peso has been floating within a
widening band, the limits of which the Argentine government has vowed to
defend. By mid-September the peso’s official rate was testing the upper limit of
that band, even briefly piercing it on September 17th to reach 1,475 to the
dollar. Over the following two days the Argentine central bank spent some $1
billion of its scarce foreign-currency reserves to defend the currency.
Suddenly, the Argentinian government didn’t have enough
foreign-currency reserves — you know, money that is actually worth something —
to keep purchasing its own pesos, which were increasingly worth next to
nothing. But they had to, otherwise people would conclude that the Argentinian
peso really wasn’t worth anything, setting off a massive financial crisis.
Enter U.S. Treasury Secretary Scott Bessent. On September
22, Bessent announced to the world via X, “Argentina is a systemically
important U.S. ally in Latin America, and the U.S. Treasury stands ready to do
what is needed within its mandate to support Argentina. All options for
stabilization are on the table. These options may include, but are not limited
to, swap lines, direct currency purchases, and purchases of U.S.
dollar-denominated government debt from Treasury’s Exchange Stabilization Fund.
Opportunities for private investment remain expansive, and Argentina will be
Great Again. We remain confident that President Milei’s support for fiscal
discipline and pro-growth reforms are necessary to break Argentina’s long
history of decline.”
About a month later, the Trump administration has
concluded that yes, indeed, the U.S. must buy a whole bunch of Argentinian
pesos to keep the Argentinian economy afloat. On
October 9, Bessent announced:
Argentina faces a moment of acute
illiquidity. The international community — including the International Monetary
Fund — is unified behind Argentina and its prudent fiscal strategy, but only
the United States can act swiftly. And act we will. To that end, today we
directly purchased Argentine pesos. Additionally, we have finalized a $20
billion currency swap framework with Argentina’s central bank. The U.S.
Treasury is prepared, immediately, to take whatever exceptional measures are
warranted to provide stability to markets.
This is not exactly a common move from the Treasury
Department. As the Federal Reserve Bank of New York noted, this is only the fourth time the U.S. government has made a move
like this:
The Federal Reserve and the U.S.
Treasury may intervene in the [Foreign Exchange, or FX] market when required to
counter disorderly market conditions. After the breakdown of the Bretton Woods
system in 1971, the United States monetary authorities (the Federal Reserve and
the U.S. Treasury) used FX intervention both to reduce excess exchange rate
volatility and to signal the views of the U.S. that the exchange rate did not
reflect fundamental economic conditions. However, since 1996, the U.S. has only
intervened on three separate occasions, including a purchase of Japanese yen in
June 1998, a purchase of euros in September 2000, and a sale of Japanese yen in
March 2011.
This isn’t unprecedented, but it’s pretty darn rare.
The American people, by and large, hate bailouts, at home or abroad. The arguments about creating moral hazards are
strong and compelling. But the consequences of not bailing out a particular
institution may well be worse than the bailouts themselves. As
Bessent put it in a separate X post on October 10, “We do not want another
failed or China-led state in Latin America. Stabilizing Argentina is America
First.”
No, we don’t want that. But it would be hard to begrudge
MAGA-minded Americans, or anyone else really, wondering how the same
administration that earlier eliminated the U.S. Agency for International
Development, which had an average annual budget of $23 billion, just spent
close to that sum to purchase Argentinian pesos. This administration really
can’t stand foreign aid . . . except for the days that it really supports
foreign aid.
On October 26, Argentina will hold its midterm elections
for half the seats in the lower house, the Chamber of Deputies, and one-third
of the seats in the Senate. Those midterm elections are widely seen as
make-or-break for Milei’s free-market economic agenda.
The American perception of this bailout is unlikely to be
helped by the fact that President Trump, in yesterday’s meeting with Milei, made it sound like the whole point of the bailout was to help
Milei in the Argentina midterm elections:
Trump: And the election is
coming up very soon, and it’s a very big election being watched by the world
because he’s done an incredible job. But with that comes some pain and — they
have some pain and now they’re coming out of it. I think the victory is very important.
Your poll numbers, I hear, are pretty good, but I think they’ll be better after
this.
And you know, our approvals are
somewhat subject to who wins the election because if a socialist, or in the
case of New York City, a communist wins, you feel a lot differently about
making an investment. I think, Scott, you’d feel that if somebody that had no
chance — in other words, if somebody wins and has no chance of ever having a
great economy, because of that philosophy, you would put a halt to what we’re
doing.
Scott Bessent: Yes, sir,
and we’re confident that President Milei is going to do well. We’ve been
criticized by a couple of American Peronists like Senator Warren.
On September 22, Massachusetts Democratic Senator
Elizabeth Warren wrote to Bessent:
It is deeply troubling that the
president intends to use significant emergency funds to inflate the value of a
foreign government’s currency and bolster its financial markets. President
Trump’s close personal relationship with President Milei, and the timing of
this bailout ahead of a critical October 26 midterm election in Argentina,
raise serious concerns that the purpose of this bailout is personal and
political — and comes at the expense of the American people.
Let’s do something we rarely do around here and give
Warren credit for consistency; she opposed the bailouts of Wall Street back in 2008, locking horns
with Obama’s Treasury Secretary Timothy Geithner.
But whether or not you think Warren qualifies as a
Peronist . . . don’t cry for her.
Earlier this month, Agustin Forzani, a Buenos Aires-based economist who got his
masters’ at George Mason University, argued here at NR that
unless Argentina made lasting structural changes, Milei was always going to be
swimming upstream in a system that incentivized bad choices and short-term
thinking:
Argentina requires a
transformation at its institutional level. The challenge is not simply to elect
the right people to do the right thing but to implement a framework that
depends less on who is in charge at any given point. Institutions must provide
the foundation for long-term economic growth and political stability. This
involves not only maintaining the fiscal surplus, putting the currency on an
even keel (no easy task as recent events have reminded us), and advancing
pension, labor, and tax reforms but also deeper political changes, such as
strengthening the judiciary and improving the rule of law. . . .
Milei’s government will
eventually end. Others will take office, possibly even those who left Argentina
on the brink of collapse in 2023. But if Argentina builds a sound institutional
structure, even the worst politicians will be constrained from returning to
policies that deliver short-term political gain at the expense of long-term
prosperity.
If Argentina doesn’t give Milei’s party a big reassuring
win in the midterms . . . how likely is it that he will be able to keep pushing
his country into a more stable and free-market-oriented direction? And if he
can’t . . . how likely is it that five years from now or ten years from now,
the Argentinian currency is somehow worth even less and needs another bailout
like the current one?
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