President Javier Milei’s government on Monday has formalised a currency swap agreement with the United States for up to US$20 billion that both sides hope will “contribute to Argentina's economic stability."
US President Donald Trump hopes the muilti-billion-dollar financial lifeline will boost Milei, a key regional ally, ahead of key legislative elections this weekend.
The announcement, made by the Central Bank in Buenos Aires, comes amid a run against the peso and is the latest in a series of measures by US President Donald Trump’s administration.
The Republican leader has showered Argentina with political and economic support ahead of the October 26 midterms, which will decide whether Milei can force through labour, tax and pension reforms.
Milei, once a global poster boy for budget-slashing libertarian politics, is on the ropes as Argentines head to the polls.
His reform push has stalled amid scandal and crisis, his popularity is falling and he is battling rumours of an imminent devaluation of Argentina's currency, the peso, before the vote, fearing that would drive up consumer prices and ruin his attempts to clamp down on inflation.
Markets, however, see the peso as substantially overvalued, forcing Milei’s government to use Argentina’s scant foreign reserves to defend its value.
Inflation, which Milei had initially managed to stem after taking office in December 2023, is slowly beginning to accelerate.
Trump has now agreed to step in with a long-mooted US$20-billion plan.
US Treasury Scott Bessent has also pledged another $20 billion in public and private funds to help Argentina weather market turmoil, conditional on a strong electoral showing by Milei.
"If he loses, we are not going to be generous with Argentina," Trump said as he hosted Milei at the White House earlier this month.
Milei outlined details of the bailout in an interview last week, saying it would only be activated if needed.
A good result is "one that allows me to get one-third [of Congress] to defend the government's measures," said Milei on Thursday in reference to the votes he needs so that his presidential vetoes cannot be reversed.
'Macroeconomic stability'
The currency swap deal is designed to “contribute to Argentina's macroeconomic stability, with a special emphasis on preserving price stability and promoting sustainable economic growth,” said Argentina's Central Bank, announcing the deal.
“The agreement establishes the terms and conditions for bilateral currency swap operations between both parties."
According to information provided by the government, the operations allow the Central bank to “expand the set of monetary and exchange rate policy instruments available, including strengthening the liquidity of its international reserves.”
However, details of the deal were few and far between. Essential details such as tranches, activations, terms or interest rates were not announced and a statement from the US government is yet to be released.
The main objective of the deal, according to analysts, is to reassure investors that Argentina will have the necessary funds to pay hefty foreign currency debt maturities due in the coming months.
Talks over the swap have been going on for several weeks and its confirmation comes at a key moment for the Milei administration, with only five trading days left before the October 26 election.
'Remote control'
Trump's support for Milei has raised eyebrows in Washington, where Argentina is seen as neither a vital trade nor security partner.
US exports to Argentina are worth about US$9 billion a year, versus US$28 billion worth of exports to Colombia.
In contrast to his support for Milei, Trump has vowed to cut aid and security support to Colombia because of a spat with leftist President Gustavo Petro.
Facing criticism in the United States, Trump snapped at a reporter on Sunday as he justified his largesse.
"They're fighting for their life … they're struggling to survive. Do you understand what that means? They have no money. They have no anything."
Last week, the US Treasury intervened by buying up pesos, but failed to stop the currency's decline.
Argentina's opposition has also slammed Trump's intervention.
"The economy is being run by remote control from the United States," former president Cristina Fernández de Kirchner declared Friday on social media, posting from her Buenos Aires apartment, where she is under house arrest for corruption.
US intervention has so far failed to halt the dollar's surge against the peso: the greenback broke through the upper band of the exchange rate on Monday, hitting 1,495 pesos.
Since Milei's party was defeated in Buenos Aires Province legislative elections in September the peso has lost seven percent of its value against the dollar.
Most economists – and the nation’s financially literate citizens – expect the government to make moves toward devaluation after the election.
– TIMES/AFP/NA
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