BREAKINGVIEWS-An Argentina bailout could use a bit of globalism

By Sebastian Pellejero

NEW YORK, Sept 24 (Reuters Breakingviews) - Javier Milei has done what few Argentine presidents have dared: slashed spending, delivering a fiscal surplus. Yet capital is flooding out of the country. Fiscal books may be balanced, but the currency isn't, a contradiction that may soon become Washington's expensive problem. Milei’s ideological fellow travelers in the Trump administration say they will lend their support, with Treasury Secretary Scott Bessent singling out politically hostile “speculators” as enemies. Yet if foreign cash doesn’t follow America’s lead, Argentina’s libertarian experiment risks ending in costly dependency.

The country’s position remains fragile. Over $40 billion in foreign-denominated debt comes due through 2027. After subtracting its obligations, Argentina’s currency reserves are in the red. The peso’s relative strength has stymied attempts to rebuild them. Sure, inflation slowed to 2% in August, from nearly 26% late last year. Yet imports are rising again, while small factories are cutting hours or closing altogether, the Wall Street Journal reported.

Milei has one asset: friends in Washington. Bessent on Wednesday pledged to buy Argentina's dollar bonds, provide standby credit, and negotiate a $20 billion swap line with the central bank. That may quell markets near-term, but the country has struggled through failed rescue packages before, with the International Monetary Fund adding $20 billion of loans to the pile in April. By turning this into a bilateral political project, rhetorically hostile to outsiders, Uncle Sam is now shouldering the burden alone.

Much remains unclear, including whether U.S. support is meant to defend the peso’s current level or transition it towards floating freely. Buying debt will merely reward existing creditors unless paired with measures to bring down yields to a sustainable level for fresh issuance.

It also won’t fix the key imbalance: Argentina still doesn’t generate enough exports or attract enough foreign investment to earn dollars to pay its debt. Its $5.2 billion current account deficit in the first quarter was the largest since late 2023 , just before Milei took office. Budget reform cannot do the job. A more fundamental adjustment – lower consumption, higher savings, a cheaper peso – is needed.

Milei’s mandate to drive such drastic change is waning. His coalition suffered a major defeat in a recent Buenos Aires election. Congress overrode some social spending cuts. The president’s approval rating sits at 42%, while protests are growing.

Successful emerging-market turnarounds , from Mexico in the 1990s to post-default Uruguay, paired budget cuts with trade surpluses, rising reserves, and eventual capital-markets access. If Milei can’t transition to the next step of that plan soon, Washington may find itself not just endorsing his administration but underwriting it.

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CONTEXT NEWS

The U.S. is negotiating a $20 billion swap line with Argentina's central bank and stands ready to do what is needed to support the country, Treasury Secretary Scott Bessent said on September 24 in a post on the social media platform X.