The United States has been nudging, pushing and at times, intervening with uncommon boldness in Argentina’s economy. This would be a big break from its typical “America First” approach. This was an unprecedented move, which went beyond simply supporting the market by directly purchasing the Argentine peso. It set up a $20 billion (£15 billion) currency swap line. On a political level, the intervention has already achieved dramatic success for President Javier Milei, the far-right outsider who championed free-market reforms and radical spending cuts. The broader implications of this intervention raise questions about the efficacy of such measures and their potential long-term impact.
The U.S. intervened on account of Argentina’s dire economic circumstances. One influence was that the peso had crashed right before the midterm elections. Businesses and households rushed to exchange their pesos for dollars. Because of this, the peso tanked by close to 30% so far this year, including a heavy 4% drop in just the past month alone. In a bid to stabilize the currency, the Argentine central bank imposed trading caps on the peso in mid-April. This action is important to provide stability for the country from volatile swings in the value of the currency. Common thought among analysts is that the peso is overvalued and is being supported by a hand of support from the Argentine central bank.
According to analysts, the U.S. has purchased as much as $2 billion in pesos already. Most see this direct intervention by the US to be something highly unprecedented. Brad Setser, a senior fellow at the Council on Foreign Relations, noted that “direct purchases of a struggling emerging market currency are unprecedented.” While the U.S. did make ambitious commitments to stabilize the peso, U.S. pledges haven’t completely quelled the peso’s tumble since. We did see a modest post-election bounce.
The Biden administration’s choice to intervene has received a mixed bag of reactions here at home. Critics within the Democratic Party have accused the administration of prioritizing financial “buddies” with investments in Argentina over broader economic stability. Nonetheless, Scott Bessent, an influential figure in this economic strategy, stated, “These results are a clear example that the Trump Administration policy of Peace through Economic Strength is working.” He further added that “the Argentine economic bridge has now turned a profit for the American people.”
The U.S. intervention in this case is to prop up Argentina as an ally and to prevent the possibility of destabilization of a regional trend back towards authoritarianism. By supporting Milei’s government, which has appealed to conservative interests in the U.S., Washington hopes to foster a stable economic environment conducive to American investment and influence. This leads to some huge questions. Is this a wise use of money in terms of long term strategic priorities, or is it just a band-aid?
Milei’s administration … criticized for its extreme economic measures. The peso’s increasingly precarious state and increasing reliance on U.S. support have caused alarm. Industrial policy entrenchment Analysts and advocates caution that though these short-term interventions can provide immediate relief, they’re not enough to penetrate underlying structural crises in Argentina’s economy. “Bessent has to decide in a sense whether to double down… or he has to let the peso adjust and recognize that his intervention was a bridge to the election,” Setser remarked, highlighting the dilemma facing U.S. officials.
Even as Argentina tries to overcome the scars of its economic crises, many people are too suspicious to depend on government boons. Joaquín Bagües, a local entrepreneur, expressed concerns about public sentiment: “Every single guy that I talked to, they wanted to buy dollars… they have very fresh memories about that.” This anxiety is a part of a deeper mistrust that Argentines have towards their currency and economic future.