U.S. finalizes $20 billion currency swap to stabilize Milei’s Argentine economy

The United States government confirmed on Thursday (9) a $20 billion currency swap agreement with Argentina’s Central Bank. The measure, announced by U.S. Treasury Secretary Scott Bessent, was finalized in Washington and aims to bolster the South American country’s international reserves. This intervention comes amid sharp devaluation of the Argentine peso and low dollar liquidity, worsened by recent political instability. The deal marks the first direct U.S. action in Argentina’s foreign exchange market, following promises made by President Donald Trump during a meeting with Javier Milei at the UN General Assembly in late September.

Financial authorities from both countries met in recent days to finalize the agreement’s terms. Trump had publicly praised Milei’s economic reforms during the New York event, signaling a commitment to regional stability. Argentina faces persistent fiscal challenges, with the peso recently quoted at 1,423 per dollar, after successive interventions by the local Central Bank to curb volatility.

The announcement was made after market close, avoiding immediate impacts on daily trading. Bessent emphasized that the U.S. Treasury is prepared for additional actions, if necessary, to maintain confidence in global markets.

Details of the currency intervention

The currency swap allows temporary exchange of currencies between central banks, providing dollar liquidity without requiring direct loans. In this mechanism, Argentina receives dollars now and repays equivalent pesos at a future date, with adjustments for interest and exchange rate variations. This structure helps mitigate the reserve shortage, which dropped to critical levels in recent weeks.

In addition to the swap, the U.S. conducted direct purchases of pesos in the open market, an unprecedented operation between the nations. These acquisitions took place immediately after the bilateral meeting, contributing to an initial slight recovery of the local currency. The exact volume of purchases was not disclosed, but sources indicate it exceeded $500 million in initial transactions.

The initiative complements other international support, such as the $20 billion IMF program signed in April, which includes a $12 billion disbursement by June. However, the U.S. agreement specifically targets immediate exchange rate stability, without altering the exchange rate band adopted by Argentina since the start of the year.

Trump-Milei meeting boosts negotiations

Trump and Milei met on the sidelines of the UN on September 23, where the U.S. president handed the Argentine a printed copy of a social media post praising local reforms. During the talks, Trump stated that the U.S. is willing to provide “all necessary support” to make Argentina “great again,” referring to the agenda of fiscal cuts and liberalizations.

Bessent, present at the meeting, had already signaled readiness for a $20 billion swap line beforehand. In a later statement, he described Argentine policies as “robust, anchored in fiscal discipline” and supported maintaining the current exchange rate band, which limits fluctuations between 1,000 and 1,400 pesos per dollar.

Milei publicly responded to the support, highlighting the alliance as a foundation for “economic freedom in the hemisphere.” The Argentine president has a scheduled meeting with Trump on October 14, during the IMF and World Bank assemblies in Washington, where swap operational details will be refined.

The leaders’ relationship strengthens bilateral ties, with the U.S. viewing Argentina as a strategic ally against alternative economic models in the region. American companies are already showing interest in investments in mining and energy, contingent on continued reforms.

Initial reactions in Argentine markets

Argentine markets recorded positive movements after the announcement, though the full impact depends on subsequent openings. The S&P Merval index, the main index of the Buenos Aires stock exchange, rose 5.80% on Thursday, closing at 1,924.93 points.

The dollar fell 0.06% against the peso, allowing the purchase of 1,421.44 pesos per U.S. currency unit. Public bonds maturing in 2035 advanced 4.5 cents, traded at 60.5 cents per dollar.

• Daily reserve sales by the Central Bank dropped to $290 million, easing pressure on stocks.
• Foreign investors increased positions in local assets by 2.3%, according to preliminary data.
• Expectations of reduced exchange rate volatility for the next 30 days, with projections of stabilization at 1,400 pesos per dollar.

Analysts predict that U.S. support will help curb capital outflows, estimated at $1.1 billion in the previous week.

Political crisis accelerates need for external support

Milei’s defeat in Buenos Aires’ legislative elections in September triggered a worsening of economic indicators. The ruling party, La Libertad Avanza, secured 33.7% of the votes, compared to 47.3% for the Peronist opposition, in a contest that renewed provincial legislative seats. This region accounts for 40% of the national electorate, making the result a gauge for the midterm elections on October 26.

The day after the vote, the S&P Merval plummeted 13.23%, while long-term bonds fell nearly 8%. The peso devalued 4.25%, prompting emergency interventions by the Central Bank to support the exchange rate band’s ceiling.

The electoral setback reflects concerns over the austerity agenda, including public spending cuts and fiscal restructuring. Investors question the ability to pass tax and labor reforms in Congress, where the government holds a minority.

Recent scandals, such as corruption allegations involving Karina Milei, the president’s sister and a key government figure, worsened the scenario. Leaked audios suggest irregularities in medicine purchases, leading to a 14% drop in the Merval index in August.

Despite this, Milei reaffirmed commitment to current measures, promising to “accelerate” changes to attract foreign investment.

Complementary World Bank measures

The World Bank accelerated its $12 billion plan for Argentina in September, with up to $4 billion to be released in the coming months. The package splits into public financing and private investments, focusing on strategic sectors.

The institution prioritizes unlocking critical mineral mining, such as lithium, to generate export revenues. Another focus is tourism expansion, aiming to create jobs in peripheral regions.

• Access to renewable energy will receive $1.5 billion, with infrastructure projects in supply chains.
• Support for small and medium enterprises totals $800 million, via facilitated credit lines.
• Strengthening sectoral competitiveness, including agriculture and technology, completes the allocation.

These resources complement the U.S. swap, broadening the scope for long-term growth. The bank emphasizes that success depends on sustained fiscal reforms.

Argentina maintains similar agreements with China, extended until 2026 for $18 billion, of which $5 billion are available. However, the current focus is on Western partnerships to diversify liquidity sources.

Preparations for October elections

The national legislative elections on October 26 will renew 23 Senate seats and 46 in the Chamber, testing Milei’s support base. The government seeks to expand its minority to enable pending laws, such as privatizations and pension adjustments.

Polls indicate a technical tie in key districts, with projected voter turnout at 63%, similar to Buenos Aires. Peronism, led by Axel Kicillof in the province, positions itself as a viable alternative.

Milei plans political adjustments to mobilize voters without altering the economic program. The Washington visit next week will consolidate international commitments, bolstering the stability narrative.

Favorable results could catalyze capital inflows, estimated at $7 billion via agricultural exports, if retenciones are revised. The post-election scenario will influence IMF negotiations for quarterly program reviews.