Trump and Argentina
Trump is hosting one of his close friends and allies from South America in the White House and try to help president Milei to win the Argentinian mid-term legislative elections later this month. Trump says that the U.S. will not waste our time helping Argentina if Milei loses, which could be seen as a threat to the voters in Argentina not to change course. Trump has acknowledged that a $20bn U.S. lifeline to help calm Argentina’s currency crisis is an attempt to sway legislative elections this month in the South American nation. Milei praised Trump for his peacemaking efforts and said the U.S. president’s policies would lead to prosperity.
Argentina’s financial turmoil comes ahead of national midterm elections on October 26th, seen as a test of voters’ desire to continue backing Milei’s aggressive cost-cutting, free-market reform agenda. This is an indication before the more important presidential election in 2027. Milei’s party, La Libertad Avanza (Freedom Advances) is running well in the polls and is at this point likely to gain more seats in the Senate and in the Chamber of Deputies. In the national mid-terms, Argentina will renew a third of the senators (24 out of 72) and half of the deputies (127 out of 257). Senators serve six-year terms and deputies’ four-year terms. Trump said if a socialist wins then the U.S. would feel a lot differently about supporting the South American nation. “If he loses, we are not going to be generous with Argentina,” Trump said.
For his part, Milei blamed Argentina’s economic woes on his political adversaries. But Trump’s explicit linking of a recently announced $20bn currency swap between the U.S. and Argentina to Milei’s electoral prospects is notable for an American president who has previously railed against foreign interference in elections. In recent provincial elections in Buenos Aires, Milei’s LLA performed worse than expected, spooking markets as they watch for any sign his economic program’s days might be numbered. On top of that, his party has recently been rocked by several corruption scandals.
If Milei’s party loses seats, or fails to gain more, in this month’s midterms, that could affect his government’s ability to pass further reforms. Several key vetoes he has tried to make have already been overturned by Congress, where he doesn’t have a majority. This U.S. intervention, which was supposed to stabilize the economy in Argentina, now seemed to hinge on Milei securing more political support. And it seems the financial markets are unconvinced that Trump’s endorsement will be enough to boost Milei’s electoral chances. Some voters might also be against the U.S. meddling in their internal affairs.
This currency swap was, economically speaking, supposed to be a bit of a lifeline for Argentina’s currency, the peso, which has been losing value for years. As a means to control inflation, Milei had been stopping the peso from devaluing too drastically by keeping it propped up with the country’s reserves. The problem with that is that it drained reserves ahead of $20bn of debt due next year. That led to fears, including among investors, that the country was heading for a financial crisis if it defaulted on its debts again. Some thought that to avert this Milei might have to let the currency devalue drastically, which would lead to a spike in prices as people’s money would suddenly be worth less. Many economists would argue that this would be political suicide. So, perhaps the U.S. intervention helps avoid that political disaster.
Milei’s program has come at a social cost with large cuts to pensions, education, health, infrastructure, and transport and utilities subsidies among other things so there might be a back-lash in the upcoming election regardless. Trump’s comments about support made clear that he viewed the financial support for Argentina as a lifeline not just for the country’s economy, but also for a leader willing to spread his pro-capitalist, and pro-Trump, ideology in Latin America.
A government bailout would typically be handled through the International Monetary Fund, which would establish a framework for the nation in financial duress. The I.M.F. has provided Argentina with more than 20 economic support packages since the 1950s, including as recently as this April. However, its economy has continued to lurch from crisis to crisis. Trump has a vested interest in having a close ally in South America and he is willing to spend some U.S. fund to keep the Milei program going and if possible, gain more political power. We shall see if this strategy is successful in the end of October.