U.S. bailout, Milei's big win, Wall Street profits soar—Bassenth helps out an old friend?

The $20 billion aid plan from the United States to Argentina is putting Treasury Secretary Bessent at the center of controversy. Though presented as a move for "strategic interests," the real beneficiaries may be Wall Street hedge funds heavily invested in Argentine assets.

According to a WallstreetCN article, Argentine President Milei's Libertad Avanza party won 41% of the votes in the midterm elections and took 64 seats in the lower house, likely reaching the threshold needed to safeguard the president's veto power. This provided not only crucial public endorsement for his radical austerity policies, but also relieved the US government, which previously offered $20 billion in currency swap support to Argentina.

At the same time, this overwhelming victory boosted market sentiment: on Monday, the Argentine peso rose roughly 4% against the US dollar, dollar-denominated government bonds maturing in 2046 jumped 11 cents to about 67 cents, and the Merval benchmark index closed up 22%. With the Argentine market surging, Wall Street hedge funds invested heavily in Argentine assets pocketed sizable gains.

According to Morningstar Direct data, US mutual funds and ETFs hold about $5 billion in Argentine sovereign debt. As WallstreetCN previously reported, before Bessent announced the rescue, large funds such as BlackRock, Fidelity, Pimco, and investors like Stanley Druckenmiller and Robert Citrone were already heavily invested in Argentine assets. Citrone and Druckenmiller both have close ties with Bessent.

Some analysts say the previously announced $20 billion US currency swap and $20 billion in private debt financing now seem more likely to progress. However, reports note the swap funds have not yet been disbursed, as Treasury officials are still discussing what collateral Argentina can use to protect US taxpayers from losses. More notably, renowned economist Paul Krugman called the move a "scam" to bail out hedge funds, with critics arguing that US taxpayer money is merely enabling hedge funds to sell their Argentine assets at inflated prices.

Wall Street’s Big Bet on Argentina Gets a Turning Point

Wall Street has repeatedly bet Argentina could break its cycle of financial crises, only to be disappointed time and again. But Milei’s election reignites hopes that “this time may be different.”

Argentina has long been a flashpoint in global finance. The South American nation repeatedly promises its turbulent economy is stabilizing, and such pledges are highly enticing for US banks and investors eager to reap windfalls from potential turnarounds.

Yet a string of defaults and currency depreciations have often left foreign lenders with losses—at least until the next round of reform promises and prospects of hefty returns draw them back once more.

“The risks are high, but the rewards could be high too,” said Sergi Lanau, global emerging markets strategy director at Oxford Economics.

Now, Wall Street is again at a crossroads. Milei’s agenda to slash government spending and deregulate offers fresh hope for actual Argentine stability. Sunday's midterm elections might have derailed the process, but the results offered international investors a sigh of relief.

According to Tradeweb data, on Monday, Argentina's dollar bonds maturing in 2046 rose by 11 cents, trading around 67 cents on the dollar. The Merval index closed up 22%. The peso gained about 4% against the US dollar.

Thierry Larose, portfolio manager at Vontobel Emerging Markets Bonds, stated: "Global investors may increase their allocations, which should bring a very sustained and significant rebound over the coming days, weeks, or even until the end of the year."

Larose said his firm was buying Argentine pesos and dollar-denominated bonds ahead of the election.

According to Morningstar Direct, US mutual funds and ETFs hold roughly $5 billion in Argentine sovereign debt, with Pimco, Fidelity, and BlackRock as the largest holders. Hedge funds have also been actively trading Argentine assets.

High yields and wild market swings attract investors willing to take risks for substantial profits. Compared to other developing countries, Argentina's relatively large market makes it easier to enter and exit large positions.

Mutual funds and hedge funds have already benefited from the bond rebound. If Milei can deliver on turning around Argentina's economy, they stand to gain even more.

According to media reports, some investors were already buying up dollar bonds from Argentina before the elections. If the US rescue is implemented, or Argentina returns to the bond market, these bonds are mostly likely to see returns.

Another key incentive is Milei's government last week announcing the repurchase of sovereign bonds through a debt swap plan managed by JP Morgan.

Rescue Mechanism Sparks Accusations of "Bailout Scam"

The US rescue plan is still progressing, facing numerous technical obstacles before implementation. The report quoted insiders saying Trump has already stated that the terms and size of the rescue will depend on Milei’s party's performance in Sunday's vote.

The Treasury announced plans to swap $20 billion for an equal amount of pesos. US officials said the Treasury’s emergency mechanism—the Exchange Stabilization Fund—would be used to provide the funds. Sources quoted in the report revealed that the swap funds have not yet been released, as Treasury officials remain in discussions over what collateral Argentina can provide to protect US taxpayers from loss.

When unveiling the currency swap framework, Treasury Secretary Bessent disclosed on social media that the US had also directly bought pesos to "act quickly" and help the currency escape a "severe liquidity crunch". The report notes that JP Morgan, Citigroup, and Santander were among institutions supporting interventions to aid the peso.

The Trump administration also tasked JP Morgan, Bank of America, and other major US banks with creating a $20 billion lending facility, but according to reports, these potential financiers have struggled to agree on acceptable collateral to make the credit risk more manageable.

More notably, the US has directly purchased over $1 billion worth of pesos in recent weeks to prop up the currency, meaning US taxpayer funds are now directly tied to the fate of South America’s second-largest economy.

According to a previous WallstreetCN article, Krugman cited in his latest blog post an analysis by former IMF chief economist Matthew Klein, claiming the aid mechanism works more like a "scam":

When external agencies like the US Treasury lend to the Argentine government, the funds quickly flow back out. Domestic and foreign investors use the artificially propped-up peso as a window to withdraw capital from the country. In other words, US taxpayer money props up the peso's exchange rate merely to allow hedge funds to sell their Argentine assets at inflated prices.

Bessent “Assisting” Old Friends?

According to WallstreetCN, The New York Times reported that Bessent personally has numerous links with investment moguls poised to benefit from Argentina's aid, including former colleague and hedge fund billionaire Rob Citrone, and his former mentor Stanley Druckenmiller. Both once worked alongside Bessent at Soros Fund Management.

In 2013, when Citrone worked with Bessent under Soros, he persuaded them to make a famous bet on the yen. Citrone said in a Goldman Sachs podcast interview: "At the time I convinced Scott Bessent to go big. You know, Scott jokingly said his bonus at Soros that period was 75% thanks to me."

According to two sources, before the Treasury announced the aid plan last month, Citrone was in close contact with Bessent, arguing that if the Argentine currency collapsed, Milei’s political prospects would end as well. Citrone warned Bessent that if Milei lost the election, Argentina would turn to other countries for further economic assistance, and the US could lose one of its most steadfast Latin American allies.

Moreover, days before Bessent’s visit to Argentina and announcement of the IMF assistance agreement, Citrone flew to Buenos Aires to meet Milei. Stanley Druckenmiller’s family office is the second-largest investor in Argentina’s main ETF. However, Druckenmiller said he did not communicate with Bessent about Argentina before or after the aid was announced.

Facing outside skepticism, Bessent insists the rescue plan is not a bailout for investors. He previously told the media: “We’re safeguarding US strategic interests in the Western Hemisphere. The idea that we’re helping wealthy Americans profit is completely false.” Bessent reiterated in a weekend interview that "there will be no taxpayer losses."

However, this assertion has not quelled Washington’s political storm. Massachusetts Senator Elizabeth Warren bluntly stated: "Trump promised ‘America First,’ but he put himself and his billionaire friends first—and left the American people to foot the bill."

Senior fellow Monica de Bolle from the Peterson Institute for International Economics commented: "They can call it whatever they want, but this is a bailout. By definition, it’s a bailout."

Media reports say the US rescue aims to stabilize Argentina’s fiscal situation and may help the country replenish dwindling foreign currency reserves—which Argentina needs to repay billions of dollars in external debt next year.

Some investors on Monday believed the election result could allow Argentina to return to global markets for independent borrowing next year, though doubts remain about Argentina’s defense of the peso—a policy that’s already drained billions in foreign reserves. Senior CFR fellow Brad Setser said:

"The risk, of course, is that Argentina’s policymakers might believe that Milei’s political victory combined with US support allows them to persist with strong-peso policies despite Argentina’s lack of external balance sheet to sustain it."

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