Bessent: The US Treasury is preparing to buy Argentine dollar bonds and is discussing a $20 billion currency swap line.

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After stating this Monday that he was considering "all stabilization options", U.S. Treasury Secretary Bessent revealed details of support for Argentina, backing the Milei government through a key electoral period.

On Wednesday, September 24, Eastern Time, Bessent announced that the U.S. is negotiating a $20 billion currency swap agreement with Argentina and is prepared to purchase the country's dollar-denominated bonds, providing "bridge" support to Argentine President Milei ahead of the crucial midterm elections next month. This move highlights the Trump administration's firm support for its libertarian ally and aims to guard against the risk of a run on the peso.

Boosted by Bessent's recent declaration of U.S. support, Argentine financial markets strongly rebounded this week. The peso rose as much as 2.7% against the dollar during Wednesday trading; all dollar bonds surged, with the bond maturing in 2035 climbing nearly 4 cents, completely erasing losses since the Buenos Aires local elections. The support promise effectively eased market concerns over Argentina's liquidity troubles.

Analysts believe that U.S. financial support will significantly enhance Argentina's likelihood of returning to international bond markets in early 2026. Federico Filippini, chief economist of Adcap Grupo Financiero, said this move eliminated the uncertainty of liquidity difficulties facing Milei's economic plan.

Also on Wednesday, media learned that Argentina's central bank drastically lowered its one-day repo rate on the peso by 10 percentage points to 25%. This measure curbed the peso's rally. Currently, the peso is up less than 1% against the dollar intraday. This action shows that monetary policy is still seeking a delicate balance between exchange rate stability and inflationary pressure.

Trump Once Again Steps in to Aid Argentina

This marks the Trump administration’s second major financial assistance to Argentina. In Trump’s first term in 2018, he promoted an IMF approval of a $50 billion aid plan for then-president Macri, though the agreement ultimately failed.

On Wednesday, Bessent stated on social media platform X: "The Treasury is currently negotiating with Argentine officials on a $20 billion swap line with the central bank. We are working closely with the Argentine government to prevent excessive volatility." He also said the U.S. is ready to provide significant standby credit through the Exchange Stabilization Fund.

In a media interview on Wednesday, Bessent called U.S. assistance a "bridge to the election," referring to Argentina’s midterm election on October 26. Milei hopes to strengthen his party's influence in Congress through this election, as lawmakers have recently begun to overturn his vetoes of spending bills.

Bessent stated that the U.S. supports Argentina and Milei, and does not believe the market has lost confidence in Milei; it's just that people are reminded of previous crises. He said: "We will not allow market volatility to block Milei from carrying out major economic reforms."

Market Confidence Recovers, but Challenges Remain Severe

Over the past few weeks, Argentina's markets have been volatile due to Milei's poor performance in local elections. Last week, monetary authorities used over $1 billion in foreign exchange reserves to keep the peso within the trading band set in April, which is part of Argentina’s latest agreement with the IMF.

Former Argentine finance minister Daniel Marx said: "This helps correct expectations. The ideal now is to quickly shift to a more open, market-based foreign exchange regime." An Argentine official said U.S. support creates an opportunity for Milei to adjust exchange rate policies and for the central bank to rebuild depleted foreign exchange reserves.

Although domestic inflation has dropped from 289% last year to 34%, Argentina’s economic activity has continued to decline in recent months. Analysts predict Argentina’s GDP will contract in the third quarter, unemployment remains high, and construction, manufacturing, and retail are all struggling due to weak consumption.

Geopolitical Concerns Highlight Latin American Power Play

The U.S. $20 billion swap line would exceed Argentina’s existing $18 billion swap arrangement with the People's Bank of China. During Trump’s second term, tensions have risen with Brazilian President Lula, new tariffs have been threatened on Mexico’s president, and orders have been given to crack down on Venezuelan-linked drug trafficking ships, while Milei has repeatedly visited the U.S. to openly praise Trump.

However, some U.S. economists have criticized Washington's support of Milei's economic policies. Brad Setser, senior fellow at the Council on Foreign Relations and former Treasury Department official under Obama, warned: "The U.S. must worry about ending up in the same situation as the IMF. The whole world knows it’s easier to lend money to Argentina than to get it back."

Argentina has defaulted on its debt three times since 2001 and has repeatedly failed to fully comply with IMF program requirements. Although Milei claims to be a free market advocate, faced with a stagnant economy and upcoming midterm elections, he has increasingly intervened in the markets to prop up the peso and prevent annual inflation from soaring again.

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