Snapshot:
Equity index (Merval): -48% in $ in ‘25.
Leading ADRs: YPF, Grupo Galicia, Banco Macro, Pampa Energia.
Currency: the Argentine peso (ARS CCL1) depreciated 17% against the $ in ‘25.
Central Bank policy rate (ARS): 54%.
5-yr Sovereign Bond in $ (Arg Governing Law), rated CCC+: 18.7% yield.
GDP ‘24: $630bn. Total public debt: $470bn (~55% in foreign currency).
Argentina: Milei’s Setback, Washington’s Rescue, and the Market Fallout
Argentina has once again returned to the centre of Latin America’s turbulence. Three weeks ago, President Javier Milei’s party suffered a heavy defeat in Buenos Aires province elections, rattling investor confidence and sending shockwaves through financial markets. The timing was poor: Milei’s government was already struggling with dwindling reserves, unpopular austerity measures, and fragile political support. Soon after, the U.S. Treasury stepped in with an unusual pledge of backing, underscoring Argentina’s importance for markets and Washington’s political priorities.
Markets Punish Milei’s Loss
The reaction to Milei’s electoral setback was swift. Investors, who had initially cheered his radical free-market agenda, quickly reassessed the risks of policy backtracking. Milei’s austerity drive, which had briefly won credibility by cutting subsidies and lowering monthly inflation to 2% from 26% when he took office in late 2023, is now running into political resistance. Buenos Aires province, home to nearly 40% of Argentina’s population, has long been a Peronist (populist) bastion, but the scale of Milei’s defeat raises doubts about his ability to build legislative support in the midterm election in four weeks.
Make Argentina Great Again
It was against this backdrop that the U.S. Treasury stepped forward. Secretary Scott Bessent declared that Washington would do “whatever it takes” to stabilise Argentina, including possible swap lines or direct purchases of Argentine debt. Argentina already holds the IMF’s largest ever loan program, stretching back to 2018 ($45bn) and expanded in 2025 ($20bn). The U.S. move reflects the geopolitical weight attached to Milei’s fate.
For Trump, Milei represents an ideological ally in a region where most major economies, including Brazil, Mexico, Venezuela, Colombia, Chile, and Uruguay, are led by left-leaning governments. Argentina offers Trump a rare chance to showcase that pro-market policies can gain traction even in a country long dominated by Peronism. By backing Milei, Washington signals solidarity and strategic intent: if Argentina stabilises, it becomes a counterweight to the leftist bloc and reduces Chinese influence in South America. Argentina’s central bank has had an $18bn swap with China’s PBoC since 2009.
Structural Fragilities
Despite Washington’s support, Argentina’s challenges remain daunting. The country has around $95bn in foreign-currency debt but only ~$6bn in usable reserves. Debt repayments of $44bn fall due before Milei’s term ends in late 2027. To defend the peso within its crawling band, the central bank has already spent over $1bn in the week following the recent election. Such interventions buy time but contradict IMF directives to rebuild foreign reserves.
Milei insists he will not retreat on reforms, but his policies carry contradictions. Defending the peso strains reserves while austerity risks deepening recession. Inflation has fallen, but growth has collapsed, unemployment is rising, and public discontent is spreading. Corruption allegations against top aides, including Milei’s sister, have further weakened his standing.
Many economists argue Argentina will eventually be forced to devalue the peso by 20–30% to restore competitiveness and rebuild reserves. A disorderly devaluation could erase recent progress against inflation and risk another debt crisis. Investors already demand some of the highest yields in emerging markets, making any new dollar bond issuance prohibitively costly.
Politics, Economics, and U.S. Strategy
Why does Washington care enough to intervene? History offers part of the answer. The U.S. has long feared that instability in Argentina, once among the world’s richest economies but now synonymous with crisis, could trigger contagion or invite greater Chinese involvement. Milei’s rhetoric, which includes admiration for Trump and hostility toward Beijing, aligns neatly with U.S. preferences. Supporting him now shores up a rare ideological ally and may prevent Argentina from sliding back into populism.
For Trump, optics also matter. Backing Milei allows him to present a “success story” of right-wing reform in Latin America. The symbolism of Washington rescuing Buenos Aires reinforces the narrative of a continental divide. That makes the bailout as much about politics as economics.
Market Takeaway
For investors, recent events underscore Argentina’s fragile balancing act. The U.S. rescue buys time and may limit immediate panic, but fundamentals remain unchanged: the peso is overvalued, reserves are critically low, debt obligations are enormous, and Milei faces a tough electoral test in October. Market sentiment has shifted from early optimism about his “chainsaw economics” to scepticism about his political capacity to deliver.
If Milei can hold his reform line, secure midterm support, and manage a gradual currency adjustment, Argentina could yet stabilise. If not, U.S. aid may only postpone the inevitable: another painful devaluation and possible restructuring. For now, markets demand proof not only of fiscal discipline but of political durability.
1 CCL: Contado con Liquidación, is the currency exchange rate derived from buying Argentine assets locally in ARS and selling them abroad to obtain foreign currency (USD), effectively allowing investors to convert pesos into dollars outside official exchange channels while remaining within the law. Strict controls on the official ARS market remained in place until mid-April, when they were partially lifted.
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