Argentina’s Economy Is Struggling. Why Is the White House Stepping In?

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1:48With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios, podcasts, radio, news. In a bilateral meeting on the sidelines of the United Nations General Assembly on Tuesday, President Donald Trump reiterated his support for one of his most prominent international allies. We're backing him 100 percent. We think he's done a fantastic job. Argentina's president, Javier Millay. He, like us, inherited a mess. And what he's done to fix it is good. And Scott is working with their country so that they can get good debt and all of the things that you need to make Argentina great against.

2:37Trump's remarks come at a time of financial and political uncertainty in Argentina. Millay, who's a libertarian known for his radical spending cuts and dramatic use of a chainsaw at political rallies, saw his party suffer a crushing defeat in elections in the Buenos Aires province. That triggered a sharp drop in the value of the Argentine peso and its rattled investors, who have grown concerned about what that political development could mean for midterm elections next month. The Argentina dollar bonds plunged the most in three years. That's after a provincial... The peso's freefall led to an unexpected move by U.S.

3:13Treasury Secretary Scott Besant. This week, he surprised market watchers by offering direct support to Argentina's economy. Everything, he said, was on the table. Here he is speaking on Fox Business on Wednesday. We are not going to let a disequilibrium in the market cause a backup in his substantial economic reforms. Secretary Besant announced that the U.S. was going to sort of roll out the whole red carpet for President Javier Millet. Patrick Gillespie is the chief of Bloomberg's bureau in Buenos Aires. He announced that the U.S. is negotiating a$20 billion swap line between the United States and Argentina.

3:54He's also said the Treasury is willing to buy Argentina's bonds that are sold on global markets. And he might also provide a separate standby credit or loan through a certain fund that the Treasury has at its will that it doesn't need congressional approval to go through. President Malay thanked Secretary Besant and President Trump for that commitment, which investors cheered. We saw the Argentine peso strengthen against the U.S. dollar. There's always been the rumor of, would a U.S. government bail out or help rescue a Argentine government? It's never come to fruition. It's kind of an urban legend here.

4:28So it is really shocking to actually see it happen in real time. I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, why the Trump administration is putting money and political capital behind Argentina and its self-described anarcho-capitalist president, and how what happens next could be make or break for one of Trump's closest international allies.

4:56Argentina has faced deep economic difficulties for decades. When Javier Malay was elected in 2023, the country's annual rate of inflation was around 140%. For almost two years, he's been trying to get inflation under control, while contending with a skittish market and some disappointing political developments domestically. Bloomberg Buenos Aires bureau chief Patrick Gillespie says that when Treasury Secretary Scott Besant signaled U.S. support this week, it was a surprise, in part because one of the methods of support the secretary said was up for consideration is a$20 billion swap line. The Central Bank of Argentina would open up an account in the United States, either at the U.S.

5:40Treasury, at the U.S. Federal Reserve, and deposit an equal amount of$20 billion in Argentine pesos in the United States while the U.S. opens an account at the Argentine Central Bank of Buenos Aires and deposits$20 billion. So it acts on paper as nobody actually giving someone else money, but in practice, since the Argentine peso is so much weaker than the U.S. dollar, it acts as sort of a buffer for the Argentine peso, at least in the near term. That's the thinking behind it. But usually these are loans that are done between the Federal Reserve and central banks around the world. It's very unusual that the loan is directly from the Treasury to a central bank.

6:22You mentioned this exchange stabilization fund that the Treasury has. Is that something that Treasury relies on a lot? The Exchange Stabilization Fund started back in the 1930s. It actually originates from the Gold Act, I believe, of 1934. And it's been used over 100 times by the United States for different operations. It was tapped in 1995 to give a$20 billion loan to the Mexican government during what was called the tequila crisis back then when their currency was in the sell-off. But this is a very unusual sign of support in a much different context. It hasn't been used in recent years, at least in Latin America, and it certainly hasn't been used to this extent between the United States and Argentina.

7:03The United States has supported several IMF programs of Argentina, and it should be important to note, David, that this$20 billion potential loan from the United States to Argentina is coming after Trump supported Argentina securing a separate$20 billion loan from the International Monetary Fund just back in April. And that obviously hasn't been enough to calm markets and assure people that Milley has the firepower he needs to weather the market volatility and the election volatility. As I think about the uniqueness of this, the kind of unilateral nature of it stands out to me. So you mentioned the IMF having done, I guess, close to two dozen of these bailouts for Argentina.

7:42That's a multilateral institution. How rare or how extraordinary is it that the U.S. is proposing doing this on its own? It's extremely rare, David. It also remains to be seen if this is truly a loan or if this is a grand theatrical act of support from the Trump administration. They actually have not bought Argentine bonds. They have not loaned$20 billion. They've only said that they're negotiating and working on this. And Scott Besson himself said that this is supposed to be a bridge to Argentina's midterm elections on October 26th. Here's Besson on Fox Business on Wednesday. The plan is, as long as President Millet continues with his strong economic policies to help him, to bridge him to the election.

8:27So even the people advocating for this rescue package for Pablo Millet's government are framing this as sort of a patchwork to get through for the next four weeks. So it remains unclear if this is a long-term U.S. investment in Argentina or just trying to support an ally while he's facing some political volatility. Let's play this out a bit. Let's say we get this$20 billion swap line. How are we going to gauge whether or not it's had a positive effect on the economy? Well, I think the hope from the Trump administration and Javier Millet's government is that it stabilizes the currency in the near term.

9:00We were dealing with a currency sell-off in the past few days. And the hope is that this is enough to show for the people selling off on the peso, hey, Argentina, on paper, in theory, could have the firepower to support the currency and stabilize inflation in the near term. I should say stabilize inflation in the Argentina context. By any global standard, Argentina has extremely high inflation. But here, it's been getting relatively better, but at a significant economic cost to people here in Argentina. Patrick, in recent weeks, I know that Argentina itself has taken some actions here to stem the crisis that's been underway there.

9:38What has it done and how successful has it been? Argentina has not been very successful in stemming the currency crisis of the past few weeks, mostly because this isn't really a monetary issue. This is a political problem. This election in October is a referendum on his presidency like it is for so many other world leaders. And people have sort of run out of patience with his austerity campaign. And at the same time, while you've had these historic change in economic policies in Argentina, Millet has ignored the political class, the political elites that may have won him some praise and respect early on in his presidency.

10:14But ultimately, these are the people in the parties that have the machinery to get the vote out, to make sure people vote. He doesn't have good relationships with the other center or center-right parties in Argentina. He doesn't have a relationship with governors in Argentina, are very important. And he's really vilified Congress. Congress is now starting to overturn some of Millet's vetoes. And David, around this time that we're seeing Millais' political strategy sort of go off the rails, his sister and his most important advisor, Karina Millais, is facing bribery allegations. It's a pretty classic case where a government agency gives a bloated contract to a company and there's WhatsApp audio messages where people have alleged that Karina is taking kickbacks from these pharmaceutical companies.

11:00This is at a time when Millet has actually vetoed a bill that would have increased spending for disability medications in Argentina. So the optics are all types of bad for Javier Millet. And Patrick, we should note that Karina Millet has denied those allegations. I want to dig a little bit more into the rationale of this move by the U.S. Treasury Secretary. He called Argentina a systemically important U.S. ally in Latin America. Why Argentina and why now? Why is the Trump administration so interested in getting involved in this way? If you think about at least Latin America, Donald Trump and Javier Millet are lonely leaders in this region without each other.

11:40Javier Millet has brewed tensions with Lula in Brazil, Petro in Colombia, Scheinbaum in Mexico. And Trump has done the same through different tactics such as trade tariffs. Millet has mostly just sent very nasty insults at those leaders who have also traded insults back at him, right? So Millet and Trump really don't have any friends besides themselves in the region. And if you think beyond sort of the fact that Millet is a big MAGA supporter and in the conservative circles in the United States, Millet is very popular. Why are they doing this now? There's a few geopolitical reasons to think about this, David.

12:17Argentina, since 2009, has had a swap line of$18 billion with the Chinese Central Bank. It remains to be unclear, but it would certainly make sense if the U.S. is trying to counter China's influence in the region. If a condition that we don't know about yet could be that Argentina has to get rid of or reduce its exposure to China via that swap line and sort of replace it with this one. The other thing long term, when you think about Argentina, David, is it is strategic when it comes to resources. Argentina has some of the world's largest lithium resources, shale oil, shale gas reserves. So to have a friendly ally at a time when the U.S.

12:57obviously has a very tenuous relationship with Venezuela, one of the countries with the world's largest oil reserves, from a resources standpoint, allying with Millet makes a lot of sense. And Millet is willing to be Trump's biggest fan in Latin America at a time when he doesn't have a lot of friends. Coming up, how potentially extending a$20 billion economic lifeline to South America's second largest economy squares with President Trump's America first foreign policy or doesn't.

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16:17Shortly after Scott Besant became the 79th U.S. Treasury Secretary, one of the first trips he took overseas was to Argentina. Bloomberg's Patrick Gillespie says that was a surprise. It's certainly not a destination Besant's predecessors prioritized in that way. Argentina isn't even Latin America's number one economy. Patrick, you look at the trade relationship between the U.S. and Brazil, and I think that's like 90-plus billion dollars. Argentina is a fraction of that, yet the U.S. is treating Brazil in really a totally different way. The tariffs that have been levied on Brazil are huge by comparison.

16:51What do you make of that contrast? What does that tell us about this administration's approach to Latin America? To me, it says that Trump is playing friends and it doesn't matter really what the size of your economy is. Trump wants political allegiance, political loyalty. He wants his allies in the region to kiss the ring and bend the knee. And what you're seeing is an emboldened Lula in Brazil, the president of Brazil, who is now in his third presidential term. This is effectively a golden egg for him politically going into Brazil's election next year, where he can say, look at the United States.

17:26They are meddling in our domestic affairs. What Trump is saying is that I'm going to apply a 50 % tariff on some Brazilian goods for the fact that Brazil's Supreme Court has convicted one of Trump's allies, Jair Bolsonaro, the former president of Brazil, of plotting a coup on Lula and leading an insurrection a few years ago. So when you think about the trade relationship, the economic size of Brazil, Brazil is several times the size of Argentina economically and from a population standpoint. And it's a behemoth on the world stage, especially when it comes to commodities. You would think that the United States and Brazil want to have a relatively positive relationship as the two largest economies in the Americas.

18:07But Trump is thinking about his own priorities, and that priority right now is Javier Millet and making sure that his top MAGA ally in Latin America gets through at least for the next four weeks. When I saw those posts by the Treasury Secretary, you can count me among a group of a lot of people, I think, who kind of wondered where this came from and saw it as kind of out of step with the kind of overarching ethos, foreign policy ethos that we've seen from this White House, which is, of course, America first. There is something inherently counter to that in what Scott Besant is proposing here. That is offering this kind of economic outreach to a country of, I guess you could say, debatable economic importance to the United States.

18:52David, America First policy certainly didn't include buying other countries' bonds and sending out$20 billion checks to other countries. There's definitely a contradiction. And if you heard Trump, when he was meeting with Millay, he said, we're going to help him, but I don't think he needs a bailout. Well, we're going to help them. I don't think they need a bailout. He's done a fantastic job. So you can almost hear a bit of Trump's own hesitancy to say that he's going to be sending a check to Argentina. While this is an administration that wants to focus on bringing money in, winning to them is collecting money from tariffs, not from bailing out other countries.

19:27Or I should say at least politically bailing out other countries. Of course, it remains to be seen if this is smoke and mirrors or if the U.S. is actually going to follow through on this. I think, at least in the initial stage, they're hoping that just these words from Besant could help Millet in the near term to stabilize the currency and the markets. We are about a month out from that midterm election you mentioned on October the 26th. Of course, President Millet not on the ballot in those elections. But what is that election going to tell us about his prospects and the future of his approach to the Argentine economy more broadly?

19:59Millet is going to have a really short honeymoon, if that at all, after these midterm elections, because he needs to start making some very difficult decisions after this election that are going to be even more politically costly. It's pretty clear to everyone that the currency is overvalued. The peso is too strong and Millet is going to have to loosen his grip on the currency, which has been sort of part of his formula for bringing down inflation. And as inflation has come down, his popularity had maintained relatively high considering the austerity campaign he went into. He's going to keep going on the austerity.

20:35That doesn't seem to be changing. But what's clear is that he needs to let the peso really float and really trade freely like most currencies in the world. And inevitably, that's a good thing in the long term in the sense that it would allow the central bank to rebuild its buffer of cash, foreign reserves, your rainy day stash of money to prevent the next big crisis in markets. But in the near term, if you're buying dollars in the economy, that means you're pushing pesos in there as well. And that stokes inflation. Millet has been saying to voters, this is always worth it. Inflation is coming down.

21:10And all of a sudden, after this midterm election, inflation starts going back up. Well, it certainly doesn't seem like Millet is delivering on his promises to voters. So this is a crucial vote for him, both from Argentine society perspective, whether they want to go back 180 degrees in the other direction just two years after they gave Millet this mandate to change the course of the economy. And it's also a big moment for foreign investors who are focused on Argentina because Millet hasn't even implemented most of his big economic reforms that he's promised to deliver and that would really reshape Argentina in a more structural way.

21:46Patrick, thank you very much. Thank you, David.

21:54This is The Big Take from Bloomberg News. I'm David Gura. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back tomorrow.

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