Why Is the U.S. Giving Billions to Argentina?

0:05President Trump and Argentina's President Javier Millet have a close relationship. If you see the photos of Javier Millet when he meets Trump, he just seems so happy. He's just kind of in his zone when he's in that environment. Here they are together at a political conference for conservatives in 2024. Make Argentina great again. Yeah, so Malay has always been, you know, a top fan of President Trump. He described President Trump's loss in 2020 as, you know, a threat to Western civilization. Those were the words he used. That's our colleague Ryan Dubé. He covers Latin America. Both of them are kind of political outsiders.

0:49Both of them were also very critical of kind of leftist, woke political programs. And Malay wanted to really align Argentina and his government with the U.S. and with the Trump administration.

1:09This Sunday, President Malay will face his first real electoral test since he took office in 2023. That election will indicate how voters feel about Malay's radical overhaul of Argentina's troubled economy. What does Malay's position look like right now? So it's been deteriorating, actually. It hasn't been very good. A few months ago, I think things were looking really up for him and stuff. He was bringing down inflation. Poverty had begun to decline. But it's starting to show some cracks, I think, in his program. Really, the economy hasn't recovered like they were hoping it would. Now, Millay is hoping his relationship with Trump will give his economic vision a much-needed boost.

1:49And last week, Trump said that he would give Argentina a bailout to the tune of$20 billion, if Millay's party does well in Sunday's election. How significant is this? Yeah, it's incredibly significant. You know, the Trump administration is betting heavily on Javier Millay in Argentina. He's trying to pick, you know, the winners in Argentina's domestic politics as well, which is pretty unprecedented.

2:17Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, October 24th.

2:30Coming up on the show, why Trump is trying to rescue Argentina's president.

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4:23When Javier Millet ran for office in 2023, he would often campaign with a chainsaw.

4:34So he went on the campaign trail. He was out on the street with his chainsaw, waving it around. And it was kind of to show that this was going to be really a drastic cut to the public sector and public spending in Argentina. So literally like taking a chainsaw to all of it. Exactly. And it sounds like this worked. He got elected. I think that tells you, you know, he was a political outsider coming into this with really no strong establishment support. So that tells you a lot about, I think, the situation, economic situation in Argentina before he was elected. Just, you know, it was so bad that people were willing to, you know, go a drastically different direction.

5:12So it appealed to a lot of people who were really suffering from this very high inflation. To say Argentina has money problems would be an understatement. The country has received more than 20 bailouts from the International Monetary Fund since the 1950s. And Argentina has struggled to control spiraling inflation. When Millet was elected, inflation was in the triple digits. So he put his chainsaw to use. He quickly cut regulations, slashed public spending by 30 percent, and fired thousands of government workers. You know, it worked. I mean, he was able to bring down inflation pretty quickly. It was painful, but people went along with it, it seemed.

5:52Millet's cuts helped him balance the budget. And they earned him a huge fan base amongst prominent right-wing figures around the world. One of his biggest supporters is Elon Musk, who oversaw big cuts to U.S. government spending. Earlier this year, Musk appeared on stage with Millet, also wielding a chainsaw. This is the chainsaw for bureaucracy. Chainsaw!

6:19But Millet's dramatic cuts also hurt a lot of Argentinians. To cut spending, you had to stop construction projects. So a lot of the workers lost their jobs because of that. They had to, you know, they reduced the real increase of pensions. So pensioners, the amount of money that they had at the end of the month, it would go less than it would before, I guess. You know, they closed ministries. So a lot of those public workers, they lost their jobs as well. And that had a ripple effect across the economy. So consumption declined across the economy, and that impacted, you know, private businesses, for example, factories, shops that are selling clothes, for example.

6:58And what are you hearing from people that you've spoken to in Argentina? So I think, I mean, it depends who you ask. There's still a lot of people who defend him, who thinks that you've got to give him more time, that he inherited a, you know, terrible situation. Other people are saying, you know, like, we're closing our factories, we can't make it to the end of the month, and how much longer is this going to go on for? And Millet's dramatic austerity policies didn't address one very big problem in Argentina's economy, the country's currency, the peso. The Argentine peso is pegged to the value of the U.S.

7:32dollar. That basically means the value of the peso doesn't fluctuate according to market rates like other currencies. One benefit of pegging a currency is that it can help control inflation. In Argentina, the policy has also kept the peso artificially strong, despite its history of economic trouble. But pegging currencies also comes with some big trade-offs. A strong peso can be good, in that it makes it cheaper to import goods into Argentina. But at the same time, a strong peso makes Argentine products more expensive in foreign markets, which hurts the country's exporters and businesses. For example, because of the strong peso, then local tourism was really hurt because it was more expensive for people to come to Argentina to go to restaurants, to stay at hotels, and also for Argentines to stay in Argentina.

8:21So a lot of them, they ended up going to Brazil, they ended up going to Chile, where it's actually cheaper. And they would buy goods in those countries as well, instead of buying locally. The problem of the peso has dogged Millet's radical economic vision, and it's limited his ability to push through with the rest of his free market overhaul. So that's the situation. I think a lot of people were willing to kind of give Javier Millet the opportunity to turn the economy around, and probably they still are. But there's also, you know, it's two years into this now, and there's a lot of fatigue, I think, in Argentina.

8:56And then in September, voters expressed that fatigue with Malay's economic experiment during a local election in Buenos Aires. The province holds around 40 percent of Argentina's population. I think in any other year, it might not have got a lot of attention. But because it was seen as kind of a bellwether for this midterm election coming up, there was more attention placed on that vote. Millet went into that local election feeling very confident and declared it would be a death knell for his opponents, the Peronist Party. Instead, Millet's Freedom Advances Party actually lost ground. And that just raised a lot of concerns.

9:33Argentines and investors started pulling their money out of Argentina. The peso began to devalue really quickly, and the government kind of had to step in and try to defend it. Things just kind of snowballed very quickly for him. Would it be a stretch to say that the results of this election may have put Millet's economic vision in jeopardy? No, I don't think so. I think that's definitely what happened. Basically what happened is that, you know, people start to lose faith that he will be able to continue with his free market reforms. Coming up, President Trump offers Millet a lifeline.

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11:26Just weeks after Javier Malay's party suffered a setback in the Buenos Aires election, U.S. Treasury Secretary Scott Besant made an unexpected announcement on X, a rescue package for Argentina. Besant said that the U.S. government would step in to bail out Argentina's economy in a few ways. The U.S. would buy pesos to prop up the currency's value. The administration would also use taxpayer dollars for a$20 billion currency swap, which is basically a loan. And later, Besant said the U.S. government would help corral another$20 billion loan backed by the private sector. Thank you very much. It's a great honor to have the leader of Argentina, a place that I love, I've been to.

12:09Last week, President Trump invited Millay to meet with him at the White House. He's a great economist, and he was saying a lot of very correct things, and he was very much in a conservative mode. At that meeting, Trump made a surprising announcement about the rescue package. Turns out, it has strings attached. Millet can only have the money if he succeeds in Sunday's midterm election. So we would not be generous with Argentina if that happened. If he loses, we are not going to be generous with Argentina.

12:42Very shortly after, the Argentine market really tumbled, I guess. It went down about 40 percent, the stock market index. So that highlighted the concerns of that kind of comments, I guess. Besant walked back Trump's comments a day later, saying that support for Argentina is not election-specific, but policy-specific. Besant said, quote, As long as Argentina continues enacting good policy, they will have U.S. support. But Ryan says some Argentinians are interpreting Trump's bailout condition as election interference. One economist, one analyst said he described it as a lifesaver made out of lead.

13:18So it's just going to not help at all, I guess. It can make you sink. So the concern about that is that it could backlash for sure. And Argentines, you know, they don't like having other countries, and especially the U.S., intervening in their domestic politics. So it could end up being unhelpful for President Malay. According to one pollster, Malay's approval rating has plummeted from 50 percent last year to 35 percent. And this week, the Wall Street Journal spoke to voters in Buenos Aires about what they think of Malay and the U.S. decision to intervene. Adriana del Carmen Castronuovo is a 64-year-old retiree.

14:09She believes this agreement between the U.S. and Argentina will only help politicians and not the Argentinian people. Another voter, Alejandro Casano, agrees.

14:24He says Trump only thinks about himself and his country. He added that both Trump and Millet are, quote, deranged.

14:40We've been talking about Millet's issues, but is there any financial or political risk for the Trump administration to be bailing out Argentina? Yeah, I mean, the first risk is that they end up holding, you know, pesos that become worthless, essentially, and they end up losing financially on that. I think that's a big one. Beyond the economic risk, there's some political danger for Trump here, too. Some in Trump's base are critical of his decision to help Argentina. For instance, American soybean farmers. This year, those farmers lost their biggest customer, China, who stopped buying soybeans from the U.S.

15:16to gain leverage in trade talks. China now imports soybeans from Argentina. And farmers here are wondering why their taxpayer dollars are helping their industry rivals. One of them, Scott Brown from Arkansas, spoke to MSNBC. If Argentina fails, OK, they're my second biggest competition. If we're going to make American agriculture great and make it stand on its own feet, beat, then I need my second biggest competitor to fail.

15:45So the Trump administration is facing a lot of criticism here. What does the president think the U.S. stands to gain from helping the Malay government? So I think President Trump has taken, I mean, looking more regionally at the U.S. foreign policy to Latin America under President Trump, they are really trying to kind of pick the winners and losers, I guess, in the region. And it's often based on the personal relationship that different presidents in the region have with President Trump and also the ideological stance. So in Argentina, I think they see a very close ally to the U.S., someone that they want to support.

16:24And they want to make an example, I think, for other countries in the region as well, saying that if you are allied with us, then we will help you overcome your difficulties. I think as well there's an interest in probably pushing China, which has an important and a growing interest in not only Argentina, but in Latin America, kind of sidelining China. According to Wall Street Journal reporting, the White House is pushing officials in Argentina to limit China's access to the country's resources, including critical minerals. They're also encouraging Argentina's leaders to strike deals with U.S.

17:03companies. Argentina does have a lot of potential to be a really strong economic partner in the region. It has a lot of lithium, which is needed for electric vehicles, obviously, and a lot of copper potential as well. So I think the Trump administration also kind of sees that potential.

17:25So all of this is happening in the lead-up to this big midterm election on Sunday. And let's say Millais gets the number of seats that he's hoping for, and then the U.S. does give this bailout. Could it save the Argentinian economy? I think it's tough to say. I don't, I mean, I think it'll save the moment, probably. But I think there's so many issues with Argentina's economy that to say it'll save the economy, probably not. I mean, there's so many things that need to be done. And it'll give Javier Malay more time in order to try to advance his agenda. But there are so many problems with Argentina's economy that really just bringing down inflation was just one of them.

18:03they really need to get investments back in, they need to pass labor reforms, pension reforms, and they need some political support to do that. And it's not even clear, you know, with that one-third of the seats in Congress, they'd have to kind of ally with other different political parties in order to pass those reforms. So I think Argentina has a long ways to go, and this would just be giving Malay a little bit more time. So it sounds like it's like a dead-light extension more than anything else. Yeah, I think so.

18:44That's all for today, Friday, October 24th. Additional reporting in this episode from Sylvina Fridlewski, Santiago Perez, Alexander Saidi, and Brian Schwartz. The Journal is a co-production of Spotify and The Wall Street Journal. The show is made by Catherine Brewer, Pia Gedkari, Rachel Humphries,

19:17Our engineers are Griffin Tanner, Nathan Singapak, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Peter Leonard, Bobby Lord, Emma Munger, Griffin Tanner, So Wiley, and Blue Dot Sessions. Fact-checking this week by Mary Mathis.

19:39Thanks for listening. See you on Monday.

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