Brad W. Setser
This unusual credit line—and even more unusual decision to use U.S. foreign exchange reserves to buy the Argentine peso last week—seeks to support the battered currency of South America’s third-largest economy, officials with President Donald Trump’s administration said. There is concern, however, that Argentina lacks a clear path to repaying both the United States and the already over-exposed IMF. Critics argue U.S. taxpayer dollars are being put at risk to provide Javier Milei, Argentina’s unorthodox and fiscally conservative president, a political lifeline weeks ahead of legislative elections on October 26.
Brad Setser, a senior fellow at CFR with expertise in global trade and capital flows, explains the rationale behind the Treasury’s actions—and the risks it poses—just ahead of Milei’s visit on October 14.
Why does Argentina need help now?
The details of Argentina’s economic crisis are complex, but the bottom line is simple: Argentina needs help because it is running out of hard currency.
Most people know that Argentina did a dramatic fiscal tightening immediately after Milei won Argentina’s presidency in late 2023—the image of Milei wielding a chainsaw is pretty vivid. There were large cuts to public spending that produced a more or less balanced budget this year. There is no doubt that they were real, even if there is a small hidden deficit on the books of the central bank. And yet, there are doubts about the sustainability of the cuts—public investment was reduced a bit too much, for example—and not all have broad political support.
Buenos Aires’ path back to economic stability requires more than a balanced budget. The country’s economy has historically suffered from a shortage of foreign exchange. Its export base is small and commodity heavy. Its external debts are relatively large, and its foreign exchange reserves are low.
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