U.S. Bet on Argentina’s Bailout Could Strain Its Own Purse

Uncle Sam’s wager on Argentina may be hard to unwind. On Thursday, U.S. Treasury Secretary Scott Bessent unveiled a $20 billion peso exchange framework and began purchasing the currency outright.

The unstable valuation exposes U.S. accounts to direct risk, making these dramatic steps appear more like a short-term maneuver aimed at helping President Javier Milei ahead of tough midterm elections. Even if the plan works, Washington may need to commit even more funds.

Bessent earlier hinted that the Treasury’s $221 billion Exchange Stabilization Fund (ESF) could be used for this package — a peculiar move. The ESF, which effectively opens a new line of credit, isn’t limitless. It is spread across IMF resources, foreign exchange holdings, and prior commitments, leaving only about $23 billion in directly available U.S. assets as of August.

Those funds are now being deployed in service of a currency whose value appears fundamentally misaligned. According to CEIC data, the peso closed Thursday at 1,418 per dollar — roughly 9% above its purchasing power parity of 1,544. Analysts believe it’s even more overvalued. Still, that is official government policy. The Banco Central has been spending limited dollars to keep the exchange rate between 1,000 and 1,400, projecting an image of stability while rapidly depleting reserves.

As The Financial Times reports, those reserves have now fallen to a dangerously low $13 billion — compared with more than $95 billion in short-term external debt. The $20 billion IMF loan approved in April was meant to rebuild these buffers, but by August Argentina had already missed its reserve accumulation targets.

Bessent — a former hedge fund manager who once helped George Soros “break” the Bank of England — surely understands this self-defeating dynamic. Yet the peso peg remains central to Milei’s economic program, which has turned chronic fiscal deficits into a surplus but remains hobbled by trade shocks.

A close ally of former U.S. President Donald Trump, Milei is governing at a moment when Washington is again expanding its footprint in Latin America. Both the Biden administration and Argentina’s international creditors, eager to see fiscal discipline maintained, have an interest in helping Milei’s Liberty Advance Party retain its congressional majority in this month’s election.

If Milei loses, the U.S. will have financed a failed experiment — left holding billions of pesos that could collapse in value if confidence erodes, benefiting only the creditors who got paid along the way.

Even if he wins, the cycle may continue, inviting further intervention. Pressure could mount to monetize more of the assets in the stabilization fund. And other leaders with close ties to the White House may see how easily Uncle Sam can be drawn into putting more chips on the table.

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Reference News:
The U.S. government has begun purchasing Argentine pesos and finalized a $20 billion currency-swap framework with Argentina’s central bank, Treasury Secretary Scott Bessent announced on October 9.