>*Brad Setser is a senior fellow at the Council on Foreign Relations and a former US Treasury official. Stephen Paduano is a postdoctoral fellow at the University of Oxford, an economist at the Finance for Development Lab, and a former US Treasury official.*
>As the saying goes, there are no atheists in foxholes. And there aren’t many libertarians in a financial crisis.
>Javier Milei has taken a chainsaw to his own government’s spending, but he has shown no objections to tapping the public funds of others. The Argentine president has now secured two big financial support packages in 2025: a $20bn loan from the IMF (with the generous frontloading of $14bn) and a $20bn swap line from the US Exchange Stabilization Fund. To top it off, the US has put pressure on the IMF, World Bank, and Inter-American Development Bank to speed up $12bn in disbursements in the next few months.
>Self reliance this is not. It may also not be enough to solve Argentina’s problems.
>When Milei came to power, he framed Argentina’s problems primarily as rampant fiscal deficits and inflation. Yet Argentina has also long struggled to generate the foreign exchange needed to rebuild reserves and repay external debts. Milei’s fiscal adjustment hasn’t improved Argentina’s external position. Instead, Milei’s affection for a strong peso — intended to be an inflation anchor — has led to a deterioration in Argentina’s trade accounts and an erosion of Argentina’s reserves. That is how he ended up selling down Argentina’s limited remaining reserves and calling the US over the weekend for a new lifeline.
>The US rescue loan is now in the works. But unless it comes with a condition that Argentina allow for exchange rate flexibility, it is likely that Milei will return to the foxhole, praying again for other people’s money.
>Can the ESF make Argentina great again? Before announcing the $20bn swap line negotiations and that the US Treasury “stands ready to purchase Argentina’s USD bonds”, Secretary Bessent said that US support would be unconditional. That is, for lack of a kinder word, unique.
>Past Treasury lifelines have come with extensive conditionality, intrusive scrutiny, and pledged resources for repayment. The last time the ESF was used for a foreign partner in a significant way — to provide a $20bn credit line for Mexico — the terms were demanding. The US got Mexico to agree on concrete policy targets, to provide details about the use of US financing, and to grant Treasury a veto over any disbursements if Mexico was not meeting certain conditions. In addition, Mexico would route its oil export revenues to an account of the Bank of Mexico at the New York Fed to assure future repayment.
>Bessent asked for none of this. The ESF has legal authority to support Argentina more or less however the Secretary chooses. It is authorised to “deal in gold, foreign exchange, and other instruments of credit and securities”, and ESF-funded swap lines of the sort Bessent has mentioned have long-standing precedent. But there are still significant complications to using the ESF to provide Argentina’s central bank with a $20bn swap (in effect a dollar credit line) and to using the ESF to make additional purchases of Argentine bonds in the primary and the secondary market.
Ok-Swan1152 on
What does Argentina even export, apart from beef and wine?
Mexatt on
Currency pegs be hard, yo.
I think this article kind of ignores the politics of the situation. If a significant devaluation causes high inflation to return and all the economic gains of the administration to evaporate, the administration’s ability to get cooperation out of Congress will evaporate with it and likely also their chances of making gains in the midterms. It also would increase the odds of a Peronist returning to power in the next Presidential election.
Of course, an external debt crisis would also be bad, politically.
So, yeah, currency pegs are hard. So is rapid and wideranging reform.
Apprehensive-Soil-47 on
when I laugh I’m not laughing at the Argentinians who have fallen into poverty I’m laughing at the closet chuds who thinks Libertarianism is a magic potion that cures all economic difficulties
WifeGuy-Menelaus on
Has Argentina considered more realistic reforms, like propitiating themselves to whatever vindictive god they’ve evidently angered
Alive-Star-8341 on
If it’s unconditional, then that’s certainly exceptional – exceptionally stupid. If Milei continues to defend the peso, he’s screwing himself and the US. I don’t think he’s that stupid, and I hope US officials aren’t either, but God knows at this point.
If it’s conditional on floating the peso and other market-based reforms, it’s not particularly odd. It’s certainly not handing out free money. The writer mentions the deal with Mexico in the 90s as a parallel.
6 Comments
>*Brad Setser is a senior fellow at the Council on Foreign Relations and a former US Treasury official. Stephen Paduano is a postdoctoral fellow at the University of Oxford, an economist at the Finance for Development Lab, and a former US Treasury official.*
>As the saying goes, there are no atheists in foxholes. And there aren’t many libertarians in a financial crisis.
>Javier Milei has taken a chainsaw to his own government’s spending, but he has shown no objections to tapping the public funds of others. The Argentine president has now secured two big financial support packages in 2025: a $20bn loan from the IMF (with the generous frontloading of $14bn) and a $20bn swap line from the US Exchange Stabilization Fund. To top it off, the US has put pressure on the IMF, World Bank, and Inter-American Development Bank to speed up $12bn in disbursements in the next few months.
>Self reliance this is not. It may also not be enough to solve Argentina’s problems.
>When Milei came to power, he framed Argentina’s problems primarily as rampant fiscal deficits and inflation. Yet Argentina has also long struggled to generate the foreign exchange needed to rebuild reserves and repay external debts. Milei’s fiscal adjustment hasn’t improved Argentina’s external position. Instead, Milei’s affection for a strong peso — intended to be an inflation anchor — has led to a deterioration in Argentina’s trade accounts and an erosion of Argentina’s reserves. That is how he ended up selling down Argentina’s limited remaining reserves and calling the US over the weekend for a new lifeline.
>The US rescue loan is now in the works. But unless it comes with a condition that Argentina allow for exchange rate flexibility, it is likely that Milei will return to the foxhole, praying again for other people’s money.
>Can the ESF make Argentina great again? Before announcing the $20bn swap line negotiations and that the US Treasury “stands ready to purchase Argentina’s USD bonds”, Secretary Bessent said that US support would be unconditional. That is, for lack of a kinder word, unique.
>Past Treasury lifelines have come with extensive conditionality, intrusive scrutiny, and pledged resources for repayment. The last time the ESF was used for a foreign partner in a significant way — to provide a $20bn credit line for Mexico — the terms were demanding. The US got Mexico to agree on concrete policy targets, to provide details about the use of US financing, and to grant Treasury a veto over any disbursements if Mexico was not meeting certain conditions. In addition, Mexico would route its oil export revenues to an account of the Bank of Mexico at the New York Fed to assure future repayment.
>Bessent asked for none of this. The ESF has legal authority to support Argentina more or less however the Secretary chooses. It is authorised to “deal in gold, foreign exchange, and other instruments of credit and securities”, and ESF-funded swap lines of the sort Bessent has mentioned have long-standing precedent. But there are still significant complications to using the ESF to provide Argentina’s central bank with a $20bn swap (in effect a dollar credit line) and to using the ESF to make additional purchases of Argentine bonds in the primary and the secondary market.
What does Argentina even export, apart from beef and wine?
Currency pegs be hard, yo.
I think this article kind of ignores the politics of the situation. If a significant devaluation causes high inflation to return and all the economic gains of the administration to evaporate, the administration’s ability to get cooperation out of Congress will evaporate with it and likely also their chances of making gains in the midterms. It also would increase the odds of a Peronist returning to power in the next Presidential election.
Of course, an external debt crisis would also be bad, politically.
So, yeah, currency pegs are hard. So is rapid and wideranging reform.
when I laugh I’m not laughing at the Argentinians who have fallen into poverty I’m laughing at the closet chuds who thinks Libertarianism is a magic potion that cures all economic difficulties
Has Argentina considered more realistic reforms, like propitiating themselves to whatever vindictive god they’ve evidently angered
If it’s unconditional, then that’s certainly exceptional – exceptionally stupid. If Milei continues to defend the peso, he’s screwing himself and the US. I don’t think he’s that stupid, and I hope US officials aren’t either, but God knows at this point.
If it’s conditional on floating the peso and other market-based reforms, it’s not particularly odd. It’s certainly not handing out free money. The writer mentions the deal with Mexico in the 90s as a parallel.