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Geopolitical Bailout: A Look at Argentina’s Financial Crisis
The Trump administration’s unexpected decision to bail out Argentina reflects more geopolitical motives than purely economic ones.
Coinciding with Javier Milei’s launch of his new book, La Construcción del Milagro (The Building of the Miracle), Argentina’s struggling economy finds itself in dire need of a substantial bailout from the US Treasury. Reports indicate that the Argentine central bank rapidly consumed $678 million of its foreign reserves in a single day to support the peso—a level of intervention not seen since October 2019.
On Monday, US Treasury Secretary Scott Bessent affirmed the administration’s readiness to support Argentina, labeling it a “systemically important ally of the US in Latin America.”
Argentina is a systemically important U.S. ally in Latin America, and the @USTreasury stands ready to do what is needed within its mandate to support Argentina.
All options for stabilization are on the table. 1/4
— Treasury Secretary Scott Bessent (@SecScottBessent) September 22, 2025
We remain confident that President @JMilei’s support for fiscal discipline and pro-growth reforms are necessary to break Argentina’s long history of decline.
My April comments make clear our commitment to Argentina’s people and to President Milei. 3/4https://t.co/tBVxYUaS0D
— Treasury Secretary Scott Bessent (@SecScottBessent) September 22, 2025
Following a meeting with Presidents Donald J. Trump and Milei, Bessent shed further light on the anticipated financial assistance for Argentina as it approaches its mid-term elections in October.
Under President Milei, Argentina has taken significant steps towards economic stabilization. Impressive fiscal consolidation and liberalization measures have been rolled out, establishing a groundwork for the country’s long-awaited return to prosperity. The @USTreasury is poised to purchase Argentina’s USD bonds when conditions are favorable.
Additionally, we are prepared to provide substantial standby credit through the Exchange Stabilization Fund, and discussions have been active with President Milei’s team. Negotiations are currently ongoing for a $20 billion swap line with the Central Bank. We are collaborating closely with the Argentine government to mitigate excessive market volatility.
Moreover, the United States is geared up to acquire secondary or primary government debt and is working to terminate the tax holiday for commodity producers involved in foreign exchange conversion.
Understandably, news of the latest bailout—Milei’s second in just five months—sparked an avalanche of memes on social media, including some notable examples:
New York.pic.twitter.com/U3DvpwU91X
— Javier Smaldone (@mis2centavos) September 23, 2025
Libertarians be like: pic.twitter.com/uaxXfuH6qj
— Shahin Ashkiani (@shaahin_a) September 23, 2025
Die-hard capitalists whenever they need a bailout: pic.twitter.com/r0fFmwdAqa
— WYNOI (@wynoi) September 22, 2025
We’re bailing them out now pic.twitter.com/Z6Jk4PDigP
— evan loves worf (@esjesjesj) September 23, 2025
— Benny Broncko (@BennyPBroncko) September 24, 2025
This situation prompted one particularly sharp commentary:
The US Treasury — one of the architects of the Washington Consensus — is offering to bail out a neoliberal capitalist experiment in order to prove that it works.
It doesn’t get more ironic than this. pic.twitter.com/wfqc9F19h1
— Jostein Hauge (@haugejostein) September 23, 2025
The Irony Deepens
The irony worsened when Bessent, a former hedge fund manager infamous for his role in Soros Fund Management, which profited a staggering $1 billion during the Black Wednesday crisis, cautioned that “Argentina possesses the means to counteract speculators, including those aiming to destabilize its financial markets for political purposes.”
This sentiment becomes even more paradoxical considering that Milei’s administration has reportedly benefited speculators more than any other Argentine government in recent memory, perhaps second only to Mauricio Macri’s tenure (2015-2019). Similar to Macri, Milei’s administration has encouraged innovative financial strategies, particularly through the carry trade, keeping inflation suppressed by artificially maintaining the peso’s value.
As we noted in December 2024, this carry trade was never sustainable and its collapse was expected to trigger a new currency and debt crisis, a cycle repeating itself throughout Argentina’s history. Four months later, the IMF intervened. Now, after another five months, it’s the US Treasury’s turn to engage.
The dysfunction was apparent the moment Milei appointed JP Morgan bankers—who had burdened Argentina with billions in debt during Macri’s regime—to key positions in his administration and central bank. Concerns about adverse outcomes were raised early during Milei’s presidency in our post “Who Is Luis Caputo, Argentina’s New Economy Minister (Who Is Already Making the Economy Scream)?”:
In both Spanish and English, “kaput”—derived from the German “kaputt”—means finished, destroyed. The surname of Argentina’s new Economy Minister, Luis “Toto” Caputo, is quite similar, lending itself amusingly to the notion that his first set of economic reforms—including a 54% devaluation of the Argentine peso to align with unofficial rates—could obliterate what’s left of Argentina’s fragile economy.
Predictably, this set of measures has imposed the greatest burden on the beleaguered Argentine middle and working classes while allowing the political and economic elite—whom Milei pledged to dismantle during his campaign—to come out largely unscathed or even better off.
Just a year and a half into Milei’s presidency, Argentina’s economy is in need of another bailout—marking the 23rd in its 209-year history. This one totals $42 billion, sourced from the IMF ($20 billion), the World Bank ($12 billion), and the Inter-American Development Bank ($10 billion). Much of the funds were disbursed upfront, leading to accusations that the IMF was essentially financing Milei’s electoral campaign for the upcoming mid-terms.
This situation raises urgent questions about the implications for Argentina if the current administration cannot sustain its economic policies. As we reported, numerous IMF officials openly resisted approving the April loan, citing the likelihood of default—similar to previous politically motivated loans.
The concern was that by pushing the Milei government to eliminate capital controls, the Fund would facilitate capital flight, enabling speculators to withdraw their assets just as the carry trade began to disintegrate.
It has become evident that the duration of economic bailouts for Argentina is diminishing rapidly.
The IMF, World Bank, and IDB announced $42 billion in funding, yet Milei’s scheme nearly collapsed within six months.
How long can Bessent, the last-resort financier, maintain this charade using swap lines and junk bond acquisitions? https://t.co/LG6EOJVcTU
— Saifedean Ammous (@saifedean) September 24, 2025
Debt Trap Diplomacy
Another layer of irony arises from the United States engaging in the “debt trap diplomacy” it has previously criticized China for. The evident distinction lies in the fact that most of the debt generated here is funnelled into enriching financial speculators rather than investing in meaningful development for the country or its populace. In essence, it is debt without tangible returns.
As we cautioned in May, Washington is once again weaponizing the IMF to secure its influence in Latin America:
By extending loans to struggling countries in Latin America, the IMF is assisting Washington in reasserting its strategic dominance in the region. It is potentially significant that three of the four Latin American states indebted to the IMF—Argentina, Ecuador, and El Salvador—are all governed by regimes that align closely with Washington and express support for Israel’s actions.
It is now abundantly clear that the Trump administration is directly involving itself in Argentina’s political landscape, akin to its interference in Brazil, such as its efforts to absolve Trump ally Jair Bolsonaro for his failed coup attempt in 2022. Allegedly driven to do so by Bolsonaro’s son, Eduardo, Trump has enacted 50% tariffs on many Brazilian imports.
During a recent speech before the UN General Assembly, Brazil’s President Luiz Inácio Lula da Silva fiercely defended national sovereignty:
“Even amidst unprecedented assault, Brazil chose to resist and protect its democracy, reclaimed 40 years ago… Before the world, Brazil sends a message to all aspiring autocrats and their backers: our democracy and sovereignty are non-negotiable.”
Simultaneously, Argentina appears firmly ensnared in Washington’s web. Bessent’s remarks send a clear signal to the Argentine populace: vote for Milei, or else:
I’ve also communicated with multiple US companies eager to invest significantly in various sectors within Argentina, contingent on a favorable election outcome.
The Trump administration is unwavering in its support of US allies, and President Trump has extended a rare endorsement to President Milei, expressing confidence in his economic strategies and the geopolitical relevance of the US-Argentina relationship. Post-election, we will collaborate closely with the Argentine government on principal repayments.
I will be closely monitoring developments, and the Treasury remains prepared to take the necessary actions.
“No Strings Attached.” Right…
This raises an inevitable question: what does the US gain from this arrangement?
Milei’s administration has made the dubious assertion that this bailout will come with no strings attached. However, even his staunchest advocates find this hard to believe.
The last instance of the US Treasury intervening directly in another country’s financial troubles occurred during Mexico’s Tequila Crisis in 1995. It led to severe austerity measures and privatization, mandated by the IMF. In 1998, the then-Mexican President Ernesto Zedillo—often viewed as a US proxy—socialized debts of various banks and firms, claiming it was necessary to avert a banking crisis.
Today, Mexican citizens are still grappling with the consequences of that bailout, with outstanding debts nearly doubling despite repaying $200 billion more than the original principal due to the burden of compound interest.
As El Cronista reports, in its bailout of Mexico, the US ensured the Mexican government pledged oil export revenues from the state-owned Pemex as collateral:
The prospective financial backing from the US Treasury for Javier Milei’s government to stabilize the exchange rate and mitigate the economic crisis has highlighted a powerful yet lesser-known instrument: the Exchange Rate Stabilization Fund (ESF). Established by the Gold Reserve Act of 1934, this fund comprises dollars, foreign currencies, and IMF Special Drawing Rights (SDRs). This capital can be utilized for foreign exchange market interventions or loans to foreign governments, always with Treasury Secretary approval…
History recalls that in 1995, the US learned valuable lessons during the Tequila Crisis when a $20 billion rescue package was constructed via the ESF, mandating Mexico to produce guarantees linked to oil export revenue, effectively shielding the Treasury from pure sovereign risks.
In the case of Argentina, will Milei’s government need to leverage the export revenues of the state-owned oil company YPF as collateral? Argentina boasts some of the world’s largest shale oil and gas reserves, located in its Vaca Muerta field.
Alternatively, could they be asked to use their significant lithium deposits—ranked second globally—or even uranium reserves as security?
Geopolitical Factors at Play
Juan Gabriel Tokatlian, an expert in international relations, observes that the Trump administration’s “unprecedented” decision to financially assist Argentina is driven primarily by geopolitical factors rather than purely economic ones:
In 2024, bilateral trade between the US and Mexico valued $830 billion, while trade with Argentina only reached $17 billion. The total stock of US capital invested in Mexico surpasses $150 billion, whereas in Argentina it barely amounts to $12 billion.
So, why is a country with such a limited, uncomplicated relation with the US receiving a massive bailout?
This issue must be viewed through a geopolitical lens, combined with what Trump and Milei term a cultural struggle.
While I largely align with Tokatlian’s views regarding the geopolitical motivations behind the US bailout of Argentina, it’s crucial to consider a significant economic aspect: the escalating exposure the IMF—largely controlled and funded by the US—has to Argentine debt.
By 2026, the IMF’s peak exposure to Argentina is projected to spiral to a staggering $58 billion. As noted, the efficacy of these bailouts is rapidly diminishing. As highlighted by Bloomberg in May, the more financial resources the Fund allocates to a habitual defaulter, the greater risks it accumulates on its balance sheet:
There are inherent risks for lenders when providing substantial cash advances in programs that primarily serve to refinance existing debts, according to Brad Setser, a former senior official at the US Treasury.
“The Fund’s exposure increases while the peso remains overvalued and the country is occupied with repaying bonds,” he remarked. “It appears that the Fund is positioning itself as, in effect, a junior creditor.”
It’s reasonable to conclude that US officials, irrespective of who occupies the White House, cannot afford to allow a default so soon after the IMF’s bailout. Furthermore, as Ben Norton notes, by bailing out Argentina, the US not only supports one of its most reliable allies in the region but also safeguards wealthy US investors holding Argentine assets and corporations keen on accessing Argentina’s lithium resources.
Moreover, Washington has clear political incentives to keep Milei in power for the foreseeable future. As the geopolitical landscape shifts, keeping Milei’s government intact could facilitate a succession of right-wing, socially aligned regimes in South America—governments willing to distance themselves from BRICS, much as Milei himself has done. Meanwhile, the US intensifies its campaigns against regional drug cartels and maintains pressure on progressive, non-aligned governments.
However, should Milei’s experiment implode before these elections take place, the political ramifications could severely jeopardize the electoral prospects of right-wing candidates across the continent.
The US requires Milei’s administration to remain stable, and if that entails supporting Argentina’s economy with significant financial assistance while implementing drastic cuts to US healthcare, then that is the price they are willing to pay. Argentina’s latest iteration of ultra-neoliberalism must be portrayed as a success story worth replicating.
This may shed light on why prominent figures like Niall Ferguson are praising Milei’s economic agenda, even as alarming economic indicators emerge. He stated that the world ought to observe and learn from Argentina’s experiences, all while the nation teeters on the precipice of economic collapse:
“I believe Milei is among the most literate leaders globally, especially regarding economic issues.”
NIALL FERGUSON: THE WORLD NEEDS TO WATCH AND LEARN FROM ARGENTINA
“President Milei is not only leading Argentina but also our CONTINENT.” pic.twitter.com/RO3MqxvC2t
— Argentina’s Milei News 🇦🇷🤝🌎 (@ArgMilei) August 4, 2025
The pivotal statement (02:45):
President Milei’s governance has inspired reforms not only in Argentina but across other Latin American nations. He is a leader of a significant nation—and a continent.
However, for this vision to materialize, voters in South America must embrace the notion that this revamped brand of neoliberalism—arguably more injurious than its predecessors—functions as intended, despite overwhelming evidence to the contrary. It calls to mind the famous quote from Orwell’s 1984:
“The Party instructed you to disregard the evidence of your own eyes and ears; it was their ultimate command.”
In the coming election on October 27, Argentine voters face a fundamental choice: endorse Milei and, by extension, Trump’s proposed bailout—including the accompanying constraints—or opt for the Peronist parties, potentially facing no bailout. Following a significant setback in August, where Peronist parties gained major votes in Buenos Aires province—the largest in the country—Milei risks losing control of Congress, jeopardizing many of his recent vetoes.
Yet akin to Trump, Milei continues to hold a dedicated base. As the economic landscape deteriorates and political scandals, including some involving Milei and his sister, become more prominent, one must ponder whether Trump’s economic lifeline will suffice in reversing Milei’s declining approval ratings—now below 40%—and securing victory in the fast-approaching election. If it fails, what repercussions will it have on Argentina’s already tumultuous economy?
These pressing inquiries linger, with no clear answers in sight.
Reports suggest that the Milei government is under pressure from the US to sever its ties with China, Argentina’s second-largest trading partner. Key points of contention include its $18 billion swap line with Beijing and Chinese companies’ involvement in Argentina’s nuclear and hydropower sectors, as well as Huawei’s position in Argentina’s 5G network.
