Stabilization or Strategy? The U.S. Treasury’s Gamble in Argentina
- Various Contributors
- 12 hours ago
- 12 min read
How Washington’s $20 billion lifeline to Buenos Aires blurs the line between economic stabilization and political strategy.
Written by Miranda Ibarguen and Valentina Tello
In the middle of a U.S. government shutdown and an election year in Argentina, Washington made an extraordinary move: a $20 billion lifeline that weaken the separation between economic policy and political loyalty. In October 2025, Scott Bessent announced the currency-swap agreement with Argentina’s central bank with the aim to strengthen the peso amidst political uncertainties in the country. This agreement has been reached as President Javier Milei faces mounting pressure regarding the October 26th mid-term election, which has been looking unfavorable to him so far due to peso devaluation and rising inflation. Despite spending nearly all of the central bank’s dollar reserves to stabilize the currency, Milei has struggled to contain public anxiety as savings erode and prices soar.
U.S. Treasury Secretary Scott Bessent described the arrangement as a bridge to “a better economic future for Argentina,” emphasizing that Washington seeks to avoid “another failed state in Latin America.” Furthermore, Bessent announced plans for an additional $20 billion facility funded by private banks and sovereign wealth funds, although major lenders such as JPMorgan Chase, Bank of America, and Goldman Sachs have voiced concerns about what collateral Argentina would be able to provide, demanding that the U.S. provide some type of guarantee.
Trump’s decision has sparked debates in both countries. In the U.S., both Democrats and several conservatives alike have condemned the initiative as a bailout for Milei, questioning its validity during a federal government shutdown and whether it aligns with Trump’s “America First” motto. Representative Steve Cohen and Senator Elizabeth Warren demanded explanations about the source of funds and potential risks to taxpayers amid the shutdown. Meanwhile, President Donald Trump, a vocal supporter of Milei, openly linked U.S. assistance to Argentina’s electoral outcome, stating, “if he wins, we’re staying with him, and if he doesn’t win, we’re gone.”
Questions emerge over what Trump’s true motives behind the sudden generosity, and whether the intervention reflects more geopolitical motives rather than economic ones, taking into consideration China’s growing influence in Argentina’s energy and lithium sectors. This intervention tells a story about not only the fragility of Argentina’s economy and the fate of the peso, but the political calculations and mutual dependence, making the agreement far beyond Argentina’s borders.
Milei's Reform Agenda and the Constraints of Governance
Javier Milei’s administration marks Argentina’s most radical economic renovation, where his libertarian program intends to dismantle the state-centric model built during the mid-20th century. Primarily, the execution of his ‘chainsaw plan’ to stabilize the nation’s volatile economy has sparked a few controversies: is Milei’s radical economic liberalization a representation of Argentina’s solution to chronic instability, or is it just a high risk gamble with unknown socio-political opportunity costs?
After getting voted into office in December 2023, the president decided to implement what he called ‘shock therapy’. It consisted of devaluating the Argentinian peso so that each U.S. dollar would be worth 800 pesos, as opposed to the 400 it was valued at before, to close the gap between official and black market exchange rates. Additionally, he also closed 9 out of 18 ministries, got rid of more than 53,000 civil service positions and eliminated hundreds of transport, energy and social welfare subsidies. There were 1200 deregulations passed for different sectors such as trade, employment, health care and property. These allowed to lower consumer prices for imported foreign goods and also increased competitiveness in domestic markets. State business organizations–like Aerolíneas Argentinas and YPF–were also proposed to be privatized, which marked a major shift in the country’s market liberalization not seen since the 1990s.
Javier Milei, despite political and social controversies, did manage to achieve a primary fiscal surplus for the first time in fifteen years. This was done by abandoning public works and freezing pensions–which also added to the political turmoil. In early 2024, inflation reached more than 290%, while in May 2025 it dropped to 43.5% (year-on-year inflation) and a month-to-month inflation of 1.5%, the lowest since 2020. This deflation is attributed to Milei’s official recorded reduction of poverty from 52% to 34%–an incredibly impressive short-term reduction. However, this stability also came with a cost: higher unemployment and a decrease in wage, as disposable incomes now have to bear higher expenses of utility and health care costs. Besides, GDP also declined 3.5% over 2024, which further demonstrates the social costs of abrupt government cuts.
The president’s controversial reforms lead to widespread protests in 2024 and 2025 by students, unions and social organizations labeling the government’s actions as an “authoritarian economic transition”. Exploding into violent crashes, arrests, limited congress representation and 1200 decrees issued, these events caused Milei to be criticized for complicating collaborative decision-making. La Libertad Avanza, his coalition, now struggles to pass major legislation without the support of other governors or blocs (mostly centrist).
The United States’ Treasury officially announced the 20 billion dollar currency swap with Milei’s country on October 9th, 2025, and it was formalized after the formal signing by Argentinian’s Central Bank on October 20th. This transaction restored market confidence and increased Argentina’s reserves. Additionally, it allowed Milei to consolidate foreign validation of his economic model, and it illustrated how he is able to recover international confidence while battling domestic unrest.
Why Washington Chose to Step in
By late 2025, Argentina’s economy was on the verge of collapse. According to The Guardian, President Javier Milei’s government had spent nearly all of the Central Bank’s dollar reserves in an effort to defend the peso, but the currency continued to plunge. Inflation, which Milei had initially managed to slow after taking office in December 2023, began to accelerate again, undermining the brief period of disinflation that had once bolstered his credibility.
Argentina’s economy is partially dollarized, relying heavily on the U.S.’ currency as if it were its own. Once dollar reserves were depleted, Milei began losing his credibility amongst his Argentine citizens. Panic arose among savers and investors who feared that the country was once again sliding toward a crisis. Milei, having the 2025 mid-term elections around the corner, turned to his close ally for support.
In this context, the U.S. Treasury stepped in, announcing a $20 billion currency-swap deal with Argentina’s Central Bank. Treasury Secretary Scott Bessent described the program as a stabilization framework designed “to help Argentina embrace economic freedom”. The move temporarily calmed markets, and the peso and Argentine bonds improved slightly after the announcement. However, as several economists noted, this intervention was a short-term fix that is not enough for Argentina’s deeply entrenched fiscal and monetary weaknesses.
The aid, however, was not purely economic. Analysts argue that the U.S. acted out of strategic and geopolitical motives as well, aiming to battle against China’s growing influence in Argentina. Through this attempt to stabilize the peso, Washington sought to reclaim regional leverage and prevent China from taking control over key Argentine sectors, including lithium mining and agriculture.
Inside Argentina, public frustration has intensified. Years of budget cuts and economic hardship have worn down public support for Milei’s policies, most notably in the working and middle classes, triggering protests by teachers, doctors, and those most affected by such policies. According to BBC News, Milei has blamed Argentina’s liquidity crisis on “political attacks from his opponents,” attempting to divert responsibility, yet investor confidence continues to erode, remaining skeptical that foreign endorsements can compensate for domestic instability. Moreover, BBC News reported that by propping up the peso with reserves, Milei has drained liquidity ahead of $20 billion in debt payments due next year, deepening fears amongst investors of worsening future political or market conditions.
Ultimately, the U.S. intervention has bought time, not stability. As one economist observed in The Guardian, the swap “functions as a temporary patch,” postponing but not preventing deeper economic turmoil. For Washington, it serves as an assertion of strategic influence; for Buenos Aires, it reinforces the reality that survival is tied to external support.
The Milei-Trump Connection
The United States’ $20 billion currency-swap with Argentina has become much more than an economic agreement. The deal was announced in early October 2025 while the U.S. federal government was partially shut down, sparking criticism over the administration’s spending priorities and legal authority to transfer funds abroad while large parts of the federal government remained closed. One estimate from Oxford Economics stated that a shutdown reduces economic growth by 0.1 to 0.2 percent per week, and the Congressional Budget Office disclosed that the government pays furloughed workers roughly $400 million a day, deepening fiscal strain on the economy. Furthermore, Congressman Steve Cohen’s statement to the Treasury Department criticized the purchase of the undisclosed number of “volatile” pesos and reported that these transfers raise “urgent questions about legal authority, source of funds, and policy justification,” especially under a government shutdown. He further noted that this purchase was done without transparency or congressional approval. Similarly, Senator Elizabeth Warren condemned the currency-swap as an example of President Trump’s misplaced focus, arguing that “during a government shutdown, his administration is facilitating private investment in a foreign country - at the expense of the U.S. economy,” conflicting with Trump’s “America First” agenda.
Administration officials have defended the intervention as a matter of strategic interest rather than political favoritism. U.S. Treasury Secretary Scott Bessent stated that “a strong, stable Argentina as a good neighbor is explicitly in the strategic interest of the United States.” Bessent emphasized that the plan was “not a bailout,” but instead part of a broader effort to prevent another failed state in Latin America. In fact, Bessent has been coordinating a second $20 billion in financing involving private banks and sovereign wealth funds, though Reuters, amongst other media outlets, have reported that major lenders such as JPMorgan Chase, Bank of America, and Goldman Sachs remain hesitant to participate without guarantees or collateral.
Yet the political alignment between the two governments is difficult to ignore. During a White House appearance alongside President Javier Milei, Donald Trump openly declared, “If he wins, we’re staying with him, and if he doesn’t win, we’re gone,” as reported by CNN and PBS NewsHour. This statement links Washington’s financial assistance directly to Milei’s electoral goals, making this agreement both of economic and political interest. This approach can undermine democratic autonomy by creating dependency and transforming foreign aid into a tool of ideological influence, especially in vulnerable regions such as Latin America. Furthermore, the intervention reflects geopolitical motives, especially as an effort to counter China’s growing presence in Argentina’s energy and lithium sectors. Meanwhile, Trump’s efforts have drawn further criticism from domestic groups, including U.S. farmers who are frustrated with this alliance since China has redirected their soybean purchases from the U.S. to Argentina.
For Milei, however, Washington’s backing was crucial to obtain leverage in the upcoming mid-term elections. It reinforces his populist identity and strengthens his association with Trump’s nationalist brand.
The Risks beneath the $20 Billion Deal
This 20 billion dollar currency swap marks a vital yet incredibly risky financial decision for both nations. Even though the agreement has stabilized Argentina’s inflation in the short term (especially having the October mid-term elections coming up), it exposes the nations to new vulnerable geopolitical reputations and responsibilities that are now in the hands of Milei’s government to uphold.
Argentina benefits immediately from enhanced liquidity and reinforced investor confidence, but at the cost of deepened foreign dependency. The deal in place ties some of Argentina's monetary solidity to the U.S. political capriccio with Buenos Aires exposed should Washington pull the plug following the polls or during periods of political change. Experts warn that Argentina is still a "serial defaulter" with repayment risk on its $45 billion of foreign debt service due in the near term, including over $15 billion to the IMF through 2027, among the highest in emerging markets. Fiscal space is still constrained: though the government posted a 1.6% primary surplus target for 2025, austerity has created growing political opposition and growing unemployment, threatening fiscal discipline and thus the sustainability of the swap.
The Argentinian peso could slide again, erasing much of the work progress done with the current stabilization, if the reform falls apart or inflation resurfaces. Market analysts warn that the currency is still overvalued and any depreciation could trigger a domino effect of panic selling or capital flight. If that happens, Argentina might be left with a worse outcome than how it started, as it will have fewer policy tools to defend the exchange rate–on top of the diminishing reserves.
For Washington, the intervention in bailout fashion is the first of its kind in Latin America since 1995's Mexican bailout and it is broadly considered to be politically motivated. Treasury Secretary Scott Bessent's staff supported Milei as a key regional partner of President Donald Trump, who saw this as part of a broader anti-China alignment strategy. But such direct exposure risks domestic opposition and reputation damage in case the money is mismanaged by Argentine officials or if Milei loses political influence. U.S. taxpayers effectively subsidize the risk: the Treasury effectively exchanged dollars for pesos, which can plummet in a crisis, leaving the U.S. with worthless assets.
Moral hazard and political backlash are also emphasized by analysts. Congressional critics, led by Democrats, accuse the administration of "supporting a foreign leader on the eve of an election," inimical to transparency and oversight. Compounding the risk, accounts say that U.S. banks involved in the swap have asked for hard collateral—presumably Argentine sovereign paper or export receivables—to cover the risk of default, although details are unclear. This uncertainty raises questions about whether the swap is fully secured or politically wedge-driven.
At the end of the day, this swap’s fate rests in Milei’s hands. If the U.S.’ help is not perceived as a long-term alliance or if the domestic political instability aggravates, capital flight might return and that would severely undermine Argentina’s currency as well as Washington’s reputation as a trusted financial buffer. Will he be able to maintain fiscal rigidity without initiating another wave of social unrest?
What the U.S.-Argentina Deal Means for the Future
In the short term, the swap arrangement gives Argentina temporary financial relief and, consequently, boosts the markets. The deal has helped stabilize investor expectations and momentarily ease pressure on the peso by strengthening foreign reserves and signaling external confidence. By granting Milei time to consolidate reforms, keep under control inflation expectations, liquidity, and social and political turbulence, this agreement works as a bridge mechanism.
Nonetheless, when it comes to a medium-term outlook, one cannot fail to acknowledge the deep structural challenges that constrain Argentina. The country still faces a chronic inflation problem, a limited access to international capital markets and deeply solidified fiscal imbalances. Although there have been some improvements thanks to the recent austerity measures, it will be hard to sustain the current debt path given Argentina's dependence on commodity exports and external financing. Domestic turmoil only worsens the government attempt to change fiscal policy, as the rising social inequality and unemployment is directly affected by Milei’s fiscal tightening. This complicated the policy environment because Javier Milei’s decisions continuously produced social discontent and political resistance.
Geopolitically, the swap represents the reassertion of US influence in South America following the increase of China’s financial presence. In the last decade, Beijing has expanded its footprint in Latin America by financing infrastructure through currency swap lines and investing in strategic sectors. This means that the US intervention in Argentinian politics represents more than just a financial maneuver: it is a strategic recalibration of regional influence and a signal of US’ comeback. Washington is attempting to restore its credibility as the stable economic partner of the Western Hemisphere.
Political implications are vital for President Milei. This deal allows him to paint a narrative of constant international endorsement, which further proves his claim that “the global financial community supports (his) market-oriented reforms”. Nonetheless, this will only be effective if the economic aid translates into actual improvements in Argentinians’ quality of life, especially with the midterm elections on October 26th in mind. A failure to do so would risk the public’s loyalty and confidence towards the government and would undermine the legitimacy of his reform agenda.
Taking stock
At a broader level, this swap demonstrates a growth of economic and geopolitical interdependence between world powers and developing countries during a period of rapid globalization. Additionally, it is the perfect representation of how future alliances will work, considering the development of a polarized international environment. Political cycles, markets and ideological alliances are intertwining, blurring the traditional distinction of whether foreign aid aims to strengthen economic policy or consolidate strategic influence in the region. The outcome of this arrangement, whether a success or a failure, will resonate beyond Argentina: it will tell the international community whether financial power and aid can translate into a durable political outcome for both parties.
Bibliography:
Al Jazeera (August 28, 2025) “Argentinian President Javier Milei leaves rally after protesters throw rocks”. https://www.aljazeera.com/news/2025/8/28/argentinian-president-javier-milei-leaves-rally-after-protesters-throw-rocks
D. Ap, Federal News Network (October 20, 2025) “Shutdown impact: What it means for workers, federal programs and the economy”. https://federalnewsnetwork.com/government-shutdown/2025/10/shutdown-impact-what-it-means-for-workers-federal-programs-and-the-economy/
Buenos Aires Times (October 20, 2025) “Government formalises US$20bn currency swap deal with US”. https://www.batimes.com.ar/news/argentina/argentina-formalises-us-20-billion-currency-swap-deal-with-us.phtml
Jeff Cox, CNBC (October 13, 2025) “The U.S. has stepped in with an extraordinary bailout of Argentina. Here’s what it means”. https://www.cnbc.com/2025/10/13/the-us-has-stepped-in-with-an-extraordinary-bailout-of-argentina-heres-what-it-means.html
CNN (October 14, 2025) “Javier Milei, President Trump and Argentina”. https://edition.cnn.com/2025/10/14/politics/javier-milei-president-trump-argentina
DPAM Investments (n.d.) “Argentina’s three-step gamble: Javier Milei’s economic overhaul explained”. https://www.dpaminvestments.com/professional-intermediary/lu/en/angle/the-three-phase-plan-that-reshaped-argentina
Guardian Staff Reporter, The Guardian (October 21, 2025) “Argentina formalizes $20bn currency swap deal with US”. https://www.theguardian.com/world/2025/oct/20/argentina-us-currency-swap-bailout
Talmiz Jaleel, GIS Reports (October 17, 2025) “Javier Milei’s economic policy in Argentina”. https://www.gisreportsonline.com/r/javier-milei-argentina/
Peterson Institute for International Economics (PIIE) (2025) “Milei 2025: Between Argentina’s mid-term elections and the IMF”. https://www.piie.com/blogs/realtime-economics/2025/milei-2025-between-argentinas-mid-term-elections-and-imf
Politico (October 21, 2025) “Bessent, Argentina economic deal”. https://www.politico.com/news/2025/10/21/bessent-argentina-economic-deal-00616391
Reuters (October 20, 2025) “U.S. banks hunting collateral to back $20 billion Argentina bailout – WSJ reports”. https://www.reuters.com/business/us-banks-hunting-collateral-back-20-billion-argentina-bailout-wsj-reports-2025-10-20/
United States Committee on Banking, Housing, and Urban Affairs (October 16, 2025) “Warren presses Treasury Secretary Bessent on plans to provide an additional $20 billion to Argentina amid a government shutdown”. https://www.banking.senate.gov/newsroom/minority/warren-presses-treasury-secretary-bessent-on-plans-to-provide-an-additional-20-billion-to-argentina-amid-a-government-shutdown
Ian Wells, BBC News (October 14, 2025) “Argentina’s President Milei divided his nation but won over Trump”. https://www.bbc.com/news/articles/c9865l8540eo
Ian Wells, BBC News (October 14, 2025) “Trump says US will not ‘waste our time’ helping Argentina if Milei loses”. https://www.bbc.com/news/articles/cg7n82gd7pvo
Jennifer Yang & Amanda Merchant, PBS News (October 17, 2025) “Why Trump is giving Argentina a $20 billion lifeline to help its flailing economy”. https://www.pbs.org/newshour/show/why-trump-is-giving-argentina-a-20-billion-lifeline-to-help-its-flailing-economy
Comments