Why Trump’s $20B Argentina Bailout May Be Doomed to Fail | WSJ

He's mega all the way. He's make Argentina great again.

President Trump has announced a $20 billion deal to rescue Argentina, angering some America First supporters and U.S. farmers.

The problem here is that the U.S. is entering into a situation that it has no exit strategy for.

So what has Trump actually agreed to? And how does it work?

Thank you very much.

Thank you very much. Thank you very much.

To understand the deal, you need to know who this is. Argentinian President Javier Mille, a chainsaw-wielding anarcho-capitalist elected in 2023. MAGA loves him as much as he loves MAGA.

Javier Mille was an economist. He was a TV pundit who had really very little public experience. But he came to office and he ran for office promising radical change to a country that had spent decades with economic turmoil.

Monthly inflation peaked at over 25 percent. Almost half of the country was in poverty. Argentinians had decided they had nothing to lose and voted Mele in.

When he took office, one of the kind of slogans of Javier Millet was that no hay plata, there's no money. So he just began to really slash public spending, drastically reduced the number of public workers, closed ministries and halted basically all public works projects as well.

Argentina always makes these promises and then it never follows through. But Millet followed through. And so capital flows came back to Argentina. Investors came back to Argentina.

And Argentina needs those dollars because its economy is unique. It has its official currency, the peso. But people also widely use the U.S. dollar to set prices and especially to save because no one trusts that the peso will keep its value.

After initially devaluating the peso, he wanted to keep actually a stronger peso in order to help bring down inflation. He was successful in that regard.

To do so, Millet first used a so-called crawling peg, where he steadily devalued the peso every month and later a currency band, where he kept it from falling outside of this floor and ceiling.

A lot of economists say that's not sustainable because you need to have ample central bank reserves in order to defend the peso.

If things turn sour for the government, investors are going to test your ability to maintain that exchange rate control.

From the start, Millet faced protests against his spending cuts and many are disillusioned by bribery accusations against his top aides, including his closest confidant, his sister, Corina. With the economy faltering too, Millet's party faced significant losses in local elections in early September.

He didn't have a strong political party when he took office. So he depends a lot on the public support in order to advance his reforms. Once you kind of lose that support, then there's a lot of concerns about how sustainable his program is going forward. That's why there's a lot of focus on this midterm elections on October

26. Investors concerned about those midterms panicked, triggering a sell-off of the peso. Millet tried to halt the drop by selling $1 billion of the central bank's reserves, but it failed to stabilize the currency.

Investors start getting out of Argentina because they fear the peso will devalue. Then the central bank intervenes to contain that devaluation, but that means that the central bank loses reserves in the process. Investors look at that and say, hey, they're losing reserves. So the peso is really going to devalue. So it's a cycle that, you know, just spins out of control.

Enter Donald Trump.

To the people of Argentina, we're backing him 100 percent. We think he's done a fantastic job.

In late September, the Trump administration offered a stunning show of support, floating a $20 billion economic aid package.

The fact that the U.S. decided to act in this situation in a very bluntly political way was surprising.

Your poll numbers I hear are pretty good, but I think they'll be better after this.

The announcement immediately calmed markets in Argentina, but backfired in the U.S.

So I get up one morning, I turn the news on, and you give $20 billion of taxpayer money to my competition.

The same day Trump floated a bailout, Millet announced a suspension of export taxes on most grains. And China, which has not bought any American soybeans this year, purchased millions of metric tons of the crop from Argentina. Some Democrats also accused the administration of intervening to help wealthy American investors.

Besen's pals have bought up Argentina's debts. And if Argentina goes down, those Wall Street billionaires could lose a lot of

money. This trope that we're helping out wealthy Americans with interest down there, they couldn't be more false. What we're doing is maintaining a U.S. strategic interest in the Western Hemisphere.

In October, Besson announced that the U.S. Treasury had already directly bought pesos, a first, and would provide Argentina's central bank with a $20 billion currency swap, giving it dollars to keep the peso propped up.

Argentina has had over several decades numerous bailouts, but President Trump is picking winners and losers based on ideological preferences and who he likes.

If he loses, we are not gonna be generous with Argentina.

Besson is using the Exchange Stabilization Fund, a rarely used reserve that currently holds $220 billion in assets. Unlike other spending authorized by Congress, the Treasury Secretary has total control.

It's not a bailout at all. There's no money being transferred. The ESF has never lost money. It's not going to lose money here.

When a country is in crises and it's facing a shortage of dollars and the United States supplies these dollars, that is a bailout by definition. So they may not want to call it a bailout, but it's a bailout.

Following Millet's White House visit, Besant also announced the administration would help corral a private sector rescue plan, totaling an additional $20 billion. Argentina still owes the International Monetary Fund $41 billion and has a history of defaulting. And Trump's bet may not pay off.

Amid the financial pain and corruption allegations, U.S. support may not be enough to give Mele the boost he needs in these elections.

Regardless of what happens on October 26, U.S. taxpayers are already on the hook. Yes, we now have a 20 billion lifeline. That 20 billion lifeline may not be enough. So the U.S. may have to provide Argentina with more dollars in the future, maybe not even in the far future at that, if the elections on October 26 don't go Millet's way. Because unless Argentina can fix the dual currency regime problem, even if market turmoil is not an issue for the next several weeks,

the dual currency regime problem, even if market turmoil is not an issue for the next several weeks, it'll come back.