Back in 2018, Donald Trump wanted to help an old friend. He knew Mauricio Macri from way back in their real-estate days, when they’d played golf – likely with little idea they’d end up as presidents of the United States and Argentina.
Trump’s first administration encouraged the International Monetary Fund to approve a record US$50-billion bailout, aimed at halting a currency rout in the volatile Latin American economy. Fast-forward seven years: Macri works for world football body FIFA, the IMF still hasn’t gotten its money back, and Trump is in the White House once more – hosting another Argentine leader who’s on the ropes for similar reasons, and in dire need of cash.
At a Tuesday meeting with his counterpart Javier Milei, the US president is expected to formally announce a US$20-billion lifeline designed to help his ally win midterm elections on October 26. Last week, the US Treasury even started buying the beleaguered Argentine peso – now trading in the neighbourhood of 1,350 per dollar, a stratospheric drop from the 2018 exchange rate of around 25.
Those numbers illustrate the risk of Trump’s second-term gamble on Argentina, whose economy crashed not long after getting the first-term IMF loan. As recession deepened and inflation skyrocketed, Macri slumped to a landslide defeat in the 2019 presidential election. Not long after, Argentina announced the latest in a long history of sovereign debt defaults.
Milei now faces many of the same ingredients that sank Macri – including investor fears that the powerful, leftist Peronist movement may return to power and upend policy.
The libertarian Argentine leader has managed to get the country’s budget into surplus and inflation down to about 30 percent from a peak of almost 300 percent. He’s also stored up market trouble by spending billions to prop up the peso, leaving it overvalued in the view of most investors.
If Milei needs a US rescue now, it’s not down to any prior lack of cash from Washington. The IMF, under pressure from Trump’s team, agreed to hand out another US$20-billion credit as recently as April. Rather, Milei’s unforced political errors – as well as a rejuvenated opposition – put him in a bind before Argentina’s midterm vote.
Analysts say that while another US lifeline may not turn around Milei’s fortunes, it could at least help stop the erosion of his support among voters who are weary of austerity and still waiting for a bounce-back in jobs, wages and growth.
“Without this aid, the currency was going to hell,” said Mariel Fornoni, director of Management and Fit, a polling firm in Buenos Aires. “That was going to hit prices, erasing the inflation gains that were Milei’s strong point.”
She said a US rescue package “won’t sound so nice for Argentines who’ve lived through many bailouts and the consequences” – but could at least keep the economy steady through election day.
Investors, however, appear enthusiastic ahead of the 1pm White House meeting. Argentine dollar-denominated notes due in 2035 were up more than 1.2 cents, some of the best performers in emerging markets, as trading in US bond markets resumed after a Monday holiday.
To be sure, there are some key differences between Trump’s latest Argentina bailout – staking US public money – and the 2018 IMF version.
Back then a historic drought destroyed crop exports, Argentina’s most valuable source of dollars to build up reserves and pay down debt. Milei’s economy had a solid harvest this year. It was his landslide loss in a Buenos Aires provincial ballot last month that prompted panic in markets about his prospects.
Milei’s US rescuers have their eyes far beyond his midterm election hurdle. Treasury Secretary Scott Bessent sees a successful Argentina as a blueprint for other Latin American countries – Bolivia, Colombia, Chile – that have leftist leaders in office and presidential elections upcoming, as well as a bulwark against Chinese influence in the region.
“Argentina is a beacon down there, and there’s a chance for many other countries to come along,” Bessent told CNBC in an interview.
Argentina is also a key producer of important industrial metals like lithium and copper. That likely factors into Bessent and Trump’s thinking, according to Kezia McKeague, managing director at McLarty Associates in Washington.
“The difference between this moment in Washington and when Macri came with hat in hand to the IMF is there’s a much deeper understanding of critical minerals to US national security,” she said. In the US view, “Argentina is considered to be somewhat of a frontier market. Of course there’s a key parallel in that Macri and Milei are seen as friends to President Trump.”
There are some parallels when it comes to personnel, too. While the IMF overhauled its negotiating team with Argentina after the 2018 debacle, Milei has brought back a few key figures from Macri’s economic team.
Milei’s Economy Minister Luis Caputo was Macri’s finance secretary and then led the central bank, making public years later that he opposed Argentina ever going to the IMF. Current Central Bank Governor Santiago Bausili and Finance Secretary Pablo Quirno also held senior policy positions under Macri, while Milei’s deregulation czar Federico Sturzenegger led the monetary authority back then.
Caputo and Bessent know each other from the early days of Macri’s administration in 2016, when Argentina was negotiating with holdout creditors so it could return to capital markets.
Caputo has recalled that he got criticized by the IMF after spending billions of dollars during his three-month tenure at the central bank in 2018, in an unsuccessful bid to halt the currency run.
Seven years later, he’s strongly committed to defending the peso again – telling a podcast last month that authorities will “sell up till the last dollar” to keep the currency within the band it’s supposed to trade in. As for peso policy after the midterms, when many analysts expect a shift, he said: “there’s not going to be any change.”
Bessent told Bloomberg in April that he helped engineer Argentina’s 2016 debt restructuring. The Treasury chief, who was a private investor at the time, said he initially supported Macri but felt that Argentina’s then-leader “blinked on the policy when things got tough. I don’t think this government is going to blink.”
by Patrick Gillespie & Manuela Tobias, Bloomberg
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