A dollar bazooka for Argentina

US Treasury Secretary Scott Bessent appeared to throw Argentina’s under-pressure President Javier Milei a lifeline this week with a commitment "to do what is needed" to support Latin America’s third-largest economy. 

Bessent’s comment  came after weeks of turmoil following a heavy defeat for Milei’s coalition party, La Libertad Avanza, in local elections on September 7, which, coupled with a corruption scandal involving a senior government advisor, have called into question the libertarian leader’s ability to drive through long-promised free-market reforms.

The local election defeat spooked investors and sparked a sell-off in Argentinian debt and equities. Prior to Bessent’s intervention, the value of the peso hit a record low. In response, the country’s central bank, spent more than US $1 billion of its scarce foreign reserves propping up the country’s currency.

On Monday, following his message of support, Bessent announced negotiations over a US $20 billion currency swap line with Argentina’s central bank, adding that the US government was prepared to buy Argentinian dollar-denominated bonds in the secondary market. The news calmed investors’ fears, with the peso rebounding 6% and yields on Argentinian dollar debt falling back to 3.7% on the day.

For Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, the key question is how far US support will go and whether other institutions will join with the US to shore up Argentina’s economy. 

“Further support, whether direct or via institutions like the IMF, could be pivotal,” he says. “It’s not just about liquidity. It’s about restoring confidence. Stabilizing inflation, preserving reserves, and enabling legislative reforms are all critical to attracting foreign investment. Argentina’s economic fundamentals, especially in energy, tech, and agriculture remain strong. But October’s legislative elections are also a key inflection point. A poor outcome could complicate reform efforts, though broad public appetite for change may still carry momentum. With credible US backing, Argentina has a real chance to shift from fragility to resilience.”

DeVito highlights how the wording of Bessent’s message echoed that of then-ECB governor Mario Draghi during the eurozone crisis that the central bank would do “whatever it takes” to prevent the euro from failing. “This time, for Argentina, it seems to have helped calm fears of a full-blown FX crisis,” says DeVito. “The US appears to view Argentina as a strategic partner, and an opportunity to champion democratic reform and market liberalization in South America.”