The Latin American Report # 606

This Thursday, the long-announced $20 billion currency swap between the U.S. Treasury and the Argentine Central Bank was finalized, providing clear evidence of how strategically important Washington considers the continued presence of Milei running the political business in Buenos Aires. In other words, it’s no small matter that the political color of the Pink House is now defined by a horde of libertarians obsessed with privatization, the health of the fiscal balance, and upholding social conservatism—an element very much aligned with Donald Trump’s anti-woke cultural agenda.

Milei has now received two bailouts during his first term—one from the IMF, and this one from Trump—although officials are careful not to use the word "rescue" this time. For me, it doesn’t speak well of his performance as an independent and efficient steward of an economy starved for hard currency. Thus, the state is not a bad thing if it helps you out. “I want to take this opportunity to express my immense gratitude for your unwavering support of our country,” said Milei’s Economy Minister, referring to the U.S. Treasury Secretary. “Together, as the closest allies, we will build a hemisphere of economic freedom and prosperity. We will work tirelessly every day to provide opportunities for our people,” Milei himself stated via X.

The initial message of support had not been enough to “calm” the markets, and it’s still too early to assess the medium-term impact of the measures announced today. For now, the Buenos Aires Stock Exchange maintained its upward trend, with a solid performance of its leading index, the S&P Merval, which approached +6%. The Argentine peso posted a modest gain of 0.35% at closing, but this means a welcome reversal from the bearish opening dynamic, when it had fallen 2.72% amid continued portfolio dollarization, according to Reuters, which also reported that the buy-sell operations on behalf of the U.S. Treasury were executed by Banco Santander.

It remains unclear what conditions now weigh on Buenos Aires as a result of having clinched this generous swap, though many point out that it will likely have to scale back its commercial ties with China. Milei began his term speaking quite insolently about the Asian giant, only to later extend his hand to a proud Xi Jinping when confronted with the harshness of reality. Argentina’s outstanding credit with the global lender stands at roughly $42 billion.

One of the main problems I see here is that this liquidity support provided by Washington will not translate—in the near term—into any tangible improvement in people’s daily lives. Rather, it aims to recover the macroeconomic gains achieved during Milei’s first year and a half in office. Nevertheless, the timing is favorable for the Executive power to arrive less shaken and battered at the upcoming October 26 legislative elections, which in practice amount to a presidential referendum. Milei will travel to the United States again next week.

This is all for today’s report.