White House Goes All-in on Argentina. It May Not Work.

Treasury Secretary Scott Bessent said the U.S. stands ready to help Argentina with a bailout package. (Kevin Dietsch/Getty Images)

The U.S. is preparing an extraordinary financial intervention for Argentina intended not only to ensure the functioning of its markets but to salvage the political standing of President Javier Milei, a conservative ally of the Trump administration.

The Trump administration’s plan is meant to serve as a bridge for Milei to the Oct. 26 legislative elections, Treasury Secretary Scott Bessent said Wednesday in an interview on Fox Business. “We are not going to let a disequilibrium in the market cause a backup in his substantial economic reforms. I don’t think the market has lost confidence in him,” Bessent said.

Milei has pushed through market-friendly policy changes that have made him a darling of global conservatives. Those measures have driven inflation down from triple digits to 34% in August, among other economic successes. But he has declined to allow the currency to float freely in global markets.

Milei faces political upheaval following his party’s poor showing in local elections this month. Capital has fled the country as investors judged that Milei wouldn’t be able to maintain a commitment to prevent the Argentinian peso from weakening substantially.

The peso gained 1.4% against the dollar on Wednesday morning, continuing a trend of strengthening since Bessent began discussing a bailout on Monday. However, the currency remains 26% weaker than it was six months ago. The currency crisis has prompted fears of a wider economic collapse in Argentina.

Created with Highcharts 9.0.1Argentinian peso/U.S. dollarSource: Tullett PrebonAs of Sept. 24

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President Donald Trump met with Milei on the sidelines of the U.N. General Assembly on Tuesday. Afterward, Trump gave Milei his “Complete and Total Endorsement for Re-Election as President,” Trump said on social media.

Bessent cited that political relationship in an X post on Wednesday that laid out the plans for a rescue package. “President Trump has given President Milei a rare endorsement of a foreign official,” Bessent wrote.

The package includes a mix of financial measures designed to calm markets and ensure Argentina has sufficient reserves to make payments on its obligations. Argentina negotiated a $20 billion lending facility with the International Monetary Fund earlier this year, adding to tens of billions in outstanding loans.

The U.S. is negotiating a $20 billion swap line that would allow Milei’s government to trade pesos for dollars . The U.S. is also prepared to buy dollar-denominated bonds, Bessent said, both directly from the Argentine government and on the secondary market.

Argentina has defaulted on its debt under previous governments. Its 2001 default was at the time the largest sovereign debt default in history. Hedge funds, including the one Bessent ran before leading the Treasury, bought up distressed Argentine debt on the cheap.

With the U.S. on the hook, the question now is whether Bessent’s intervention will be sufficient to ward off a new Argentine crisis. Treasury funds are likely sufficient to allow Milei to avoid making difficult choices ahead of the legislative elections. One such choice would be a rapid depreciation of the currency that would make buying goods abroad far more difficult for Argentines and could induce a recession.

The Treasury intervention doesn’t appear to include requirements that the Argentine government take steps to fix the underlying imbalance in the economy that makes it difficult for the government to stockpile enough dollars to manage flows of trade and repay external creditors.

Bessent’s approach effectively treats the Argentine shock as a problem of market confidence, rather than a question of economic policy, longtime emerging markets trader Mark Dow wrote on X. But if capital continues to flee after the October election, “the U.S. kind of owns this and would have a hard time saying no to Argentina for a bigger bailout further down the road,” Dow wrote.

While the U.S. has participated in bailouts of countries through multilateral institutions such as the IMF, the last time it directed a unilateral bailout of a single country was during Mexico’s peso crisis in 1994, said Karthik Sankaran, a former foreign exchange trader now with Quincy Institute for Responsible Statecraft. The organization advocates for restraint in international affairs.

There are significant differences between Mexico then and Argentina now. For one, the Mexican bailout came after that country’s election, not before, said Sankaran. Mexico also had far more significant economic ties to the U.S. and was in the process of integrating further through the NAFTA trade agreement.

“The bailout of Mexico was in the context of a significantly deeper economic arrangement that structurally transformed the Mexican economy for the better,” said Sankaran. “I don’t see any sign of this in Argentina.”

Bessent indicated that the U.S. was prepared to help funnel more investment into the Argentine economy, despite the Trump administration’s America First policy of pushing manufacturing dollars into the U.S.

“I have also been in touch with numerous U.S. companies who intend to make substantial foreign direct investments in Argentina [in] multiple sectors in the event of a positive election outcome,” Bessent wrote on X.

The Treasury Department didn’t respond to a request for clarification of what it would consider a positive outcome for the election.

Write to Matt Peterson at matt.peterson@dowjones.com