The United States intervened with an extraordinary bailout plan for Argentina. Here’s what it means

The Treasury Department extended Argentina’s financial life in apparent hopes of averting an emerging-market financial crisis that could spill over to U.S. shores.

In a move announced Thursday by Treasury Secretary Scott Bessent on the social media site

The move comes amid liquidity problems in Argentina that threaten the country’s stability as it faces key midterm elections.

The provision of the swap line “marks a pivotal moment for Argentina’s financial stability,” Diego Celedon, head of equity strategy for the region at JPMorgan Chase, said in a client note. “US support acts as a circuit breaker, ending the negative feedback loop that threatened to worsen Argentina’s economic tensions.”

This undertaking involves equal parts economic and political challenges, marking the first U.S. intervention of this nature since the 1995 rescue of Mexico.

Although Argentina presents little systemic risk, it can still have an impact in terms of the risk of capital flight as well as the volatility of debt and commodity markets. This chance was worth the risk of a possible payment default by Argentina.

“Overall, U.S. intervention has transformed Argentina’s near-term prospects, but the administration must now leverage its political capital to take full advantage of this window of opportunity,” Celedon wrote.

The immediate market reaction was a sharp appreciation of the peso against the dollar on Friday.

However, an exchange-traded fund linked to the country’s industrial leaders, the Global X MSCI Argentina The ETF collapsed on Friday, indicating concerns that the U.S. safety net may not be enough.

“It is unclear why the Trump administration is providing a de facto bailout for the Argentine peso when there is no significant financial or economic relationship between the two economies,” said Joseph Brusuelas, chief economist at RSM.

“It is not at all clear to me that Argentina will not choose to devalue its peso after its election later,” he added. “Therein lies one of the biggest risks of granting a $20 billion Treasury-backed swap line to Buenos Aires.”

In addition to economic and trade issues, the United States has an important political stake in what is happening in Argentina.

The October 26 elections will determine the fate of the government of President Javier Milei, who has become an important ally of the United States in the region. With investors nervous about global growth and election-year uncertainty, the bailout shows Washington is determined to keep credit markets calm at home.

In his announcement of the deal, Bessent said it was a response to “a moment of acute illiquidity” and said the United States was in a unique position to provide assistance.

He further mentioned the country’s tax reform efforts which will “generate significant dollar-denominated exports and foreign exchange reserves.”

Still, the country’s shaky fiscal history has sparked concerns that the United States could essentially waste one money after another, with Argentina having a long history of defaulting on its debts.

“Milei managed to sharply reduce inflation but struggled to stabilize the peso exchange rate against the dollar,” said Lourdes Casanova, director of the Emerging Markets Institute at Cornell University. “Given that foreign exchange trading constitutes the largest financial market in the world… no amount of reserves alone can offset this pressure.”

The move has also drawn criticism elsewhere, ranging from the strength of Argentina’s political and economic system to the White House’s use of the Financial Stability Fund for liquidity measurement.

“While the government is ‘shut down,’ the Treasury Department has officially launched its bailout plan for Argentina,” Rohit Chopra, director of the Consumer Financial Protection Bureau, said in a statement. “We are now actively pumping dollars into Argentina in exchange for the plummeting peso, rather than helping people here at home.”

Bessent, however, said Milei’s fiscal policies are “sound” and that the country’s success is of systemic importance.