Trump’s $20 Billion Swap Line With Argentina – Foreign Policy

US Treasury Secretary Scott Beesen recently announced that the United States will provide a $ 20 billion exchange line for Argentina to help stabilize the financial markets in the country and the value of the bizo. Argentine President Javier Millie took office two years ago and promised to reform the economic problems of Argentina through liberal reforms. American financial intervention indicates that these reforms did not succeed according to the plan.

How did the Mileyan presidency reach this point? What kind of historical precedent for the US exchange line? What are the risks involved in the United States?

These are only a few questions that appeared in my last conversation with the FP ECONOMICS Adam Tooze writer on the podcast that we participated in its host, That weight. The following is an excerpt, edited for length and clarity. For a full conversation, search for That weight Wherever you get your podcast. And check the newsletter of Adam alternative.

Cameron Abadi: How did the Mileyan presidency reach this point? Why does Argentina again face a financial crisis?

Adam Tuzi: If anything, the Milei program was about trying to stop inflation. The numbers that are usually cited at the present time are that the annual inflation in Argentina in April 2024 amounted to 289 percent, or approximately 300 percent, which prices are three times each year. Then the inflation rate has now decreased to 34 percent, which is still unimaginable according to the standards of Europe or the United States, but it is clear that the ten was heading to.

Milei did this through the Standard Dysmenissotherapy Package. He reduced government spending. The result is that the wages remain about 8 per cent in terms of 2023 when it was elected. So there was a shock of contraction. Unemployment has been put. Economic growth has decreased. But what Miley did not really do the curse on the bullet and completely release foreign exchanges.

Milei was rewarded for this austerity package with a large flow of funding from the International Monetary Fund [International Monetary Fund]The United States, of course, has a very strong vote. It has previously removed some foreign currency exchange controls that have previously limited the amount of money that the Argentine could take out of the country. But it did not allow a free gun for the bizo. Why not? Since it is concerned about the collapse of the Biso, there will be a huge capital journey, and this will lead to an increase in inflation to the top. He will also shake a kind of legitimacy of his government.

Instead, they assigned pegs for the exchange rate – the maximum, minimum – this really puts you as a seating tile, because the financial markets, as much as it can exchange freely, will move the exchange rate near one of the pegs that they know you must intervene. More than that, they will sell and lead the bizo. After that, they will mainly play the chicken game with the Argentine authorities about whether they have reserves that can burn to defend the bizo by purchasing Pizo against a market that sells Bizo. The market will make larger and larger bets until the moment comes when the government runs out of reserves.

Unless the Miley administration is able to do it significantly is to build reserves that exceed the billions of one, when you behave everything in terms of what they were borrowing and what was already available. According to the standards of foreign exchange speculators, this is really peanuts. [Milei’s administration] A billion dollars seem to appear earlier this week in an attempt to stabilize the currency. This took them to less than $ 5 billion in reserves. For the economy and the country, the size of Argentina, this is very few – everything that lights up emergency lamps.

The question is, do you let the bizo crash or do you try to accommodate more money to stabilize? What is Bisin and what [U.S. President Donald] Trump is trying to do is that I think the stability of Miley, and perhaps allowing them to keep this link. Since it is a matter of confidence, and if the speculators believe that they will get burning bets on the fall of the peaso, they will stop speculating. Therefore, you can intimidate them for a period of time, and you can ignore long-term problems-lack of foreign investment in Argentina, and the fact that people withdraw assets-only to keep the duration for a period of time. I think it is this kind of extension and fuel, and kicking the world of the roads we are now.

It is an explicit political motive. [Argentina’s legislative] The elections on October 26, and I think the deadline they work with. because [Milei’s party] She had a terrible result [provincial elections in] Buenos Aires, which is to a large extent the largest Argentine countries. And so on [the Trump administration is] Anxiety [Milei is] They will get a crushing defeat at the country level, and they help avoid this.

California: What are the risks involved in the United States?

in: The way to be sold – and Bessent was already coming out of this line – is that this is a liquidity crisis, so it is not a really structural problem. So Argentina has a cash flow issue, and therefore there is no real danger to extending a loan in this situation. By expanding a loan, I took out the fire and then turned out that everything is fine. The speech will shrink on the American side of the risks.

It is not really supposed to be the lending of the swap line, right? It is supposed to balance exactly, and there is supposed to be relaxed. In general, the swap lines are not made in a position with the main exchange risk. It is supposed, and [U.S. Federal Reserve] You will get insurance against any risks that you require in extending dollars. But the details of this are somewhat clear. Pesin also said that the United States will buy, if necessary, debts provided by the Argentine dollar, which is a much larger task.

California: Are there historical precedents that we should take into account with this start?

in: Historically, in 1995-this is the example that people call-with a major strategic crisis in Mexico in the mid-nineties, in the context of construction [the North American Free Trade Agreement]The United States actually made money by giving money to the Mexican government. Because if you are a deep investor with a long horizon, buy debts in a crisis can often be good because you can benefit from debt restoration, assuming that your intervention business.

But Mexico is one thing, and those interventions were a guarantee against oil revenues. The number of people who have made dangerous money in Argentina with anything other than the eagle boxes is very small. I mean, this is a little access.

The great thing in American intervention is that it is a public political. This is not just another Argentine financial crisis. Bessent has left the cat from the bag. Basically, America is entering to save the Milei project before the upcoming Argentine elections, in many words. This is not only vanilla, group garden, or macroeconomic stability – it’s a clear effort by the Trump administration to stabilize a management in Argentina, which is an ideological friend not only the province or the United States, but to Trump in particular, to Maga. It is really very unusual.

[The Trump administration is] Essentially, dozens of billions of dollars are placed on the line to ensure that their men win these elections. It is a kind of classic for cold war, but it has not been placed in this way. As you know, I would have become more difficult in the China card than it is – but, as you know, do not put a sign of the way I do. I was saying: No, this is a strategic play, and Argentina also has a swap line from China, we want to cancel Argentina’s identification from China, and for this reason we do so. As you know, they just said: No, the whole thing is related to the elections, we want our man to win.

In his shadow, you think congress may have things to say on this topic. In normal circumstances, it will be. In the nineties of the last century, Congress definitely had things that he said about the efforts of the Clinton administration in Mexico. But Congress is Congress at the present time, so God knows that they are probably just their thumb.

However, the United States is on a hook via the International Monetary Fund, and Argentina is to a large extent the largest individual International Monetary Fund program program – the most exposed, the most of them outside the fund, and the most “we will do so anyway.” There is an argument in one penny, in the pound, it may also double. But it is truly unusual in its public weapons, somewhat similar to American interference in Brazil as well. This does not choose the aspects of democracy in exchange for the Communist Party. This literally: Our man in these elections, this is what we want to support. It’s very raw.