Following a meeting on Tuesday last week on the sidelines of the United Nations General Assembly (UNGA) in New York, US President Donald Trump described his Argentinian counterpart, Javier Milei, as a “truly fantastic and powerful leader”.
He told reporters, “I’m doing something I don’t often do … I’m giving my full endorsement to him.” The next day, US Treasury Secretary Scott Bessent said that he was “working in close coordination” with President Milei and would “do what is necessary” to support Argentina’s economy.
Bessent’s pledge came after Argentine bond prices plunged sharply last week, as investors watched the country’s central bank rapidly burn through its scant foreign currency reserves to defend the falling peso.
On Tuesday this week, the currency fell by more than 6 percent – its biggest drop within a single day since September 8, forcing the government to sell yet more dollars in the spot market to shore it back up.
A maverick outsider, Milei secured a surprise election win in 2023 by promising to tame runaway inflation and promote stability. Trump – a libertarian ally – has previously described Milei as his “favourite president”.
But can Trump and his administration save the Argentinian economy? And how are they setting about such a task?
How has Milei intervened in the economy?
Disillusioned by decades of financial crises, Argentinian voters elected Milei as their president in November 2023. The far-right libertarian promised a dose of painful shock therapy – namely by slashing state spending to curb fiscal imbalances and tame inflation.
Milei’s electoral success was fuelled by years of economic frustration. With four in 10 Argentinians living in poverty when he was elected, the economy was edging towards its sixth recession in a decade. Inflation, a key concern for voters, was in triple digits.
In his first few weeks in office, Milei reduced state subsidies for fuel, cut public payrolls and reduced the number of government ministries by half. As monthly deficits fell, so did the pressure on Argentina’s central bank to print money to cover spending, which, in turn, was fuelling inflation.
The upshot was that headline inflation fell from 211 percent when Milei assumed office to 37 percent last month. However, economic activity stalled, dragged down by higher interest rates (as set by the central bank) and other growth-zapping policies aimed at lowering inflation.
So far this year, stagnating wages and rising unemployment have disillusioned some voters, and the president’s approval ratings dropped from 48 percent in July to 41 percent in the middle of September, according to pollster Trespuntozero.
Milei has also suffered several political setbacks, including a defeat in provincial elections, a corruption scandal over medical contracts linked to his sister, and a loss in Congress, which overturned his vetoes in order to restore funding for health and education.
Why is the Argentinian peso in trouble?
Since April, when the International Monetary Fund (IMF) launched its 23rd programme in Argentina, the peso has been floating in an exchange-rate band, which places a limit on how much it can rise or fall against the US dollar.
But, worried that recent setbacks have signalled an end to Milei’s popular support, currency traders began selling off the peso.
By mid-September, the peso’s official rate had dropped by nearly 10 percent and started to test the upper limits of that exchange-rate band. It briefly exceeded the upper boundary on September 17, reaching 1,475 to the dollar.
By September 19, the Argentine central bank had spent $1bn of its foreign exchange – foreign currency cash reserves used to maintain currency stability – to keep the peso below the currency ceiling. If it climbs higher, inflation could start to soar again.
Looking ahead, Argentina will have to find $10bn to finance debt payments to the IMF in the first half of 2026. Simply put, the bank does not have the financial ammunition to keep up its support of the peso for long. Which is where US support comes in.
What is Washington offering to do?
US Treasury Secretary Bessent has promised a “large” intervention to help stabilise Argentina’s wobbling currency. His announcement on Wednesday initially helped to calm financial markets.
The US Treasury is considering buying Argentine government bonds in addition to advancing a $20bn credit line, or loan. Bessent said other options for assisting Buenos Aires include central bank currency swaps and buying up dollar-denominated debt.
The aim is to provide Milei with some breathing room before the mid-term elections in October.
In a post on X, Milei thanked both Bessent and Trump for their “unconditional support”. “Those of us who defend the ideas of freedom must work together for the well-being of our peoples,” Milei said.
Throwing his weight behind Argentina’s embattled leader contrasts sharply with the steep tariffs Trump imposed on Brazil – whose president, Luiz Inácio Lula da Silva, is a left-wing leader – in July.
How did markets respond to the news?
On Wednesday last week, the day after Trump’s meeting with Milei, financial markets were initially buoyed by Bessent’s comments. Argentinian bonds due in 2029 increased in value by 6 cents to reach 71 cents on the dollar. Elsewhere, the peso was up by roughly 4 percent while local stock markets rallied.
According to Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, “Bessent’s comments led to an overall improvement in the country’s financial indicators. The news was received positively in Argentina.”
Abadia told Al Jazeera that the move had “strengthened the central bank’s international reserve position, giving it more room for manoeuvre in foreign exchange markets”.
“It’s also slightly lowered Argentina’s risk of default [which has] eased financing considerations,” he said.
But, following a week of relative stability, the peso once again dropped by 6 percent during the day on Tuesday this week, fuelled by growing political and economic uncertainty. The government intervened by selling off US dollar reserves it had been trying to rebuild, and the peso closed 1.4 percent lower at 1,380 pesos per dollar.
So, can Trump’s administration save the Argentinian economy?
If Washington steps in to offer Milei financial relief, it would mark the second major bailout for Argentina under Trump. In 2018, he pushed the IMF to agree to a $50bn loan for the then-President (and political ally) Mauricio Macri, in a deal that later unravelled.
At the start of this month, the likelihood was growing that the government would be forced to let the peso fall in value. But the prospect of US assistance looks set to merely postpone a devaluation until after the mid-term elections, experts say. Indeed, Bessent described the aid as a “bridge to the election”.
Milei will be looking to boost his party’s presence in Congress at the ballot box on October 26. But even if he retains his Libertad Levanza Party’s seats, many suspect that it will be forced to change its exchange-rate scheme to allow the peso to float more freely.
For Abadia, US financial support has “bought some time for Milei. It’s a lifeline, but not a panacea”. He added that, in the near-term, “inflation risks are on the upside… if Milei performs badly in October, the negative political and financial noise would rush back.”
“That would be a grim scenario for Milei,” said Abadia.
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