The Chainsaw Stalls: Can Milei Cut Through Argentina’s Currency Collapse?

Argentina has been burning through dollars like a gambler on borrowed time. In just seven trading sessions, the Treasury sold $1.8 billion to defend the peso and maintain an exchange rate that markets expect to collapse the day after the midterm elections. Interest rates on short-term debt surged past 87% this week, and the central bank is running low on ammunition. The Argentine government is intervening in spot and futures markets, reinstating selective foreign exchange controls and clinging to a currency band that looks increasingly fictional.

President Havier Malay insists that the peso must hold at least until October 26th when half of Congress is up for grabs. But the more dollars he throws at the problem, the more obvious it becomes that the current exchange rate is unsustainable. A US Treasury pledge of support last month managed to calm markets but didn't reverse the slump. Now the US has escalated its involvement.

On Thursday this week, Treasury Secretary Scott Bassand announced that the US exchange stabilization fund, an emergency fund run by the US Treasury, had directly purchased Argentine pesos. This is a very unusual move. The ESF has only intervened directly like this four times in the last 30 years. Its most recent high-profile intervention was more than a decade ago and came as part of a G7 effort to control a spike in the yen after the Fukushima earthquake in Japan back in 2011.

The ESF most famously lent $20 billion to support Mexico after its currency collapsed in 1994. Mexico drew down $12 billion of that 20 and eventually repaid the US with a profit. Bent also finalized a $20 billion currency swap framework with Argentina's central bank, declaring Malay's reform program to be of systemic importance. The peso rebounded slightly on this announcement, and Argentina's dollar bonds rallied, but the intervention has sparked bipartisan backlash in Washington.

Critics on both sides of the aisle are asking whether this is in America's interests. Republicans question whether it aligns with President Trump's declared America first agenda, which is possibly being replaced with an America first, unless Argentina needs $20 billion and a hug agenda. Democrats are probing whether hedge funds associated with Scott Bent played a role in the deal and whether taxpayer dollars should be used to support a foreign president whose policies may be hurting American farmers. When Havier Malay took office in December 2023, ...