Former US Treasury secretary Lawrence Summers said it’s too early to judge the Donald Trump administration’s rescue plan for Argentina, while highlighting that it has incorporated unconventional elements that raise questions.
“I’m withholding judgment at this point, but am nervous about the approach that’s being pursued,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “The tactics used in this bailout are new and raise questions, and we’ll have to see how it all plays out over time.” He flagged that there may be agreements not publicly known about US help that “make this sounder than it appears.”
Treasury Secretary Scott Bessent has led US efforts to support Argentina, which has been battling to support its exchange rate amid investor fears over the South American nation’s economic outlook. The US intervened Thursday to buy Argentina pesos and finalised a US$20-billion currency swap framework with Buenos Aires. Bessent also pledged “whatever exceptional measures are warranted to provide stability to markets.”
“The United States should take a leadership role” in efforts responding to countries facing a sudden loss of liquidity, said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “I’m somebody who’s a strong believer that the United States has to support global financial stability.”
The former Treasury chief noted his own role in engineering rescues of Mexico in 1995 along with Brazil and a number of Asian nations later that decade. He highlighted three aspects of the current Argentina initiative that make it “new and unconventional.”
Risk magnitude
So far, the US appears to be mounting the rescue on its own, Summers said. “Historically, the United States has wanted to share the burden, share the taking of risk, share the responsibility with other countries.”
It’s also unusual in the degree of risk being taken on, he said. “The United States has never before bought a pegged currency under attack” in the context of an emerging-market nation, he said. He said the Treasury wouldn’t have intervened to buy Mexican pesos in 1995 at a time when Mexico was draining its own reserves to defend its currency.
Finally, Summers said “there’s no explicit conditionality” for the assistance – no specific agreement on financial practices and policies going forward, he said.
During US President Donald Trump’s White House meeting Tuesday with Argentine President Javier Milei, Bessent said that the US aid is conditional on the current government’s economic reforms staying in place after the upcoming October 26 midterm election.
US assistance is aimed at shoring up Milei’s party in those ballots, he and Trump said. If policies tilt back toward those of the previous regime, that would “cause a US rethink,” Bessent said.
Political element
Summers said that while the “proximity to an election” makes this instance of US aid unusual, politics sometimes have been part of American motivations in the past.
He cited the post-World War II Marshall Plan, which involved “supporting the good guys at a time when there were Stalinist elements” in western Europe. He also pointed to Western backing of Russian president Boris Yeltsin in the 1990s having an element of backing a government that “was better than a Communist alternative.”
Another element that is novel about the US plan is “the degree of commitment to a currency peg,” Summers said. “This is a very speculative kind of approach,” he said. In the 1995 Mexico rescue, he noted that the US arranged for recourse to Mexican oil proceeds to ensure collateral for its assistance.
But he highlighted Bessent’s background as a foreign-exchange specialist during his hedge-fund career, and said “I would assume that he’s used that experience to judge that defending this peg is a prudent” move.
The Argentina rescue may turn out to have been a good decision, if it results in a “profitable investment” or confers “some substantial political benefit” to Washington, Summers said. But “it’s raising lots of questions in the market. And we’ll have to see how this plays out.”
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by Christopher Anstey, Bloomberg
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