US Calls Argentina Peso Bet a ‘Homerun Deal’
US Treasury Secretary Scott Bessent recently declared that the American investment in Argentina’s currency turned out to be a ‘homerun deal’. This bold move, aimed at stabilizing the Argentinian peso, garnered both support and criticism.
Key Highlights of the Deal
– Successful Repayment: Bessent confirmed that the risky US gamble has paid off, with American financial support fully repaid. The US no longer holds any Argentine pesos in its exchange stabilization fund.
– Strategic Timing: Last year, in response to the plunging currency, the US intervened to prevent further economic instability and bolster the party of President Javier Milei, a supporter of former President Donald Trump, ahead of crucial midterm elections.
– Political Controversy: The intervention sparked criticism from Democratic lawmakers who accused Bessent of risking taxpayer money on a nation known for its financial instability. However, Bessent stood firm in his assertion that this maneuver was ultimately beneficial.
– Profitable Outcome: Bessent stated in a social media announcement, Stabilizing a strong American ally – and making tens of millions in profit for Americans – is an America First homerun deal.
Intervention Details
– Market Context: When the US announced its intervention in September, there was a significant sell-off of the peso. This was largely due to fears stemming from past economic shocks and concerns about potential election outcomes for Milei’s party.
– Preventive Actions: Bessent promised decisive action to prevent further declines. A month later, he revealed that the US had purchased pesos and established a swap line with Argentina, allowing for the exchange of pesos into dollars.
– Currency Stabilization: This intervention successfully halted the peso’s decline, which experienced further gains after Milei’s party secured a significant victory in the midterm elections. However, the currency has seen a recent downturn.
Financial Details
– Swap Line Settlement: Argentina’s central bank settled the swap line in December, trading $2.5 billion in pesos for dollars out of a potential $20 billion, as outlined in a government report.
– Additional Support: The US also provided $872 million in support tied to reserves held with the International Monetary Fund (IMF). The Treasury Department has yet to respond to inquiries about this transaction.
Expert Opinions
Brad Setser, a senior fellow at the Council on Foreign Relations, commented on the outcome, saying, “Getting your money back is a straightforward definition of success,” even if the profit earned was “small change” relative to the overall sums involved.
He cautioned, however, about ongoing challenges facing the Argentine economy, particularly concerning the heavy reliance on reserves to support the currency. While Bessent was able to regain his investment successfully, there is concern that Argentina may not be prioritizing urgent plans to rebuild its reserves, Setser noted.
In conclusion, the US’s intervention in Argentina’s currency market is framed as a strategic success, but significant economic challenges remain. The lasting effects of this ‘homerun deal’ will depend on Argentina’s ability to stabilize its economy independently in the future.