In an apparent attempt to halt a sell-off of Argentine assets, Bessent announced on Monday that the Trump administration \u201cstands ready to do what is needed\u201d to support Argentina and that \u201call options for stabilisation are on the table\u201d.<\/p>\n
So how has Milei\u2019s self-proclaimed economic miracle come so close to unravelling?<\/p>\n
The libertarian economist, whose heroes include free-market evangelist Milton Friedman, scored early successes. His drastic austerity programme balanced the budget and slashed annual inflation, from a peak of 289 per cent in April 2024, to 34 per cent in August.<\/p>\n
But economists point to one big error: obsessed with keeping inflation down at all costs, Milei kept the peso\u2019s value artificially strong, which hurt economic growth, sucked in imports and prevented Argentina<\/a> from building the stock of dollars it needs to repay a mountain of foreign debt.<\/p>\n \u201cIt\u2019s a small blanket problem: the government covered itself too much on the inflation side, and didn\u2019t cover itself on the reserves side, leaving it vulnerable to a political shock,\u201d said Guido Sandleris, a former head of Argentina\u2019s central bank and professor of economics at Johns Hopkins University and Buenos Aires\u2019 Torcuato di Tella.<\/p>\n That shock came on September 7, when Milei\u2019s libertarians suffered an unexpected landslide defeat at local elections in Buenos Aires province, which is home to more than a third of Argentines and had been seen as a bellwether for national midterm elections on October 26.\u00a0<\/p>\n The result hit markets already nervous about a corruption scandal ensnaring Milei\u2019s sister and chief of staff, Karina, a breakdown of his alliances with the centrist opposition, and a series of erratic monetary policy moves, including interest rate increases, that boosted the peso but sapped economic activity.<\/p>\n The peso plunged almost 10 per cent in a fortnight, hitting the bottom of an exchange rate band adopted in April when Milei relaxed Argentina\u2019s strict currency controls after securing a $20bn loan from the IMF.\u00a0\u00a0<\/p>\n Fears mounted among local investors that the government would have to abandon the band and devalue the peso, compounding demand for dollars and accelerating the run on the currency. The central bank spent $1.1bn in three days<\/a> last week to prop it up.<\/p>\n The dollar sales, in turn, unnerved bondholders, who fretted that the government was burning through scarce hard currency reserves it may eventually need to repay debts, sending bond prices plummeting.<\/p>\n The IMF had already warned in late July that the country\u2019s international reserves, net of liabilities such as foreign exchange debt to banks, had fallen to more than $6bn in the red, after failing to meet a series of targets.<\/p>\n \u201cThe election loss pulled away the veil, revealing all the problems that had been hidden,\u201d said Carlos Melconian, an economist and former head of Banco Naci\u00f3n, Argentina\u2019s national bank, citing Milei\u2019s \u201ccompletely inconsistent\u201d exchange rate policies and his \u201clack of interest in political agreements\u201d.<\/p>\n <\/p>\n Milei was given some relief on Monday. Bessent\u2019s offer of support, due to be discussed at a Tuesday meeting between him, Trump and Milei, helped calm markets, with the peso rebounding 6 per cent and yields on Argentina\u2019s dollar debt, which move inversely to prices, falling 3.7 per cent.\u00a0<\/p>\n At the same time, Milei announced a temporary elimination of Argentina\u2019s big taxes on agricultural exports, incentivising exporters to sell some of billions of dollars’ worth of stockpiled crops and boosting the central bank\u2019s access to dollars.<\/p>\n \u201cThey stopped the haemorrhaging,\u201d said Nery Persichini, head of research at local financial broker GMA Capital, adding that Monday\u2019s moves might be enough to keep the peso away from its lower limit ahead of the midterm elections, which would shield the central bank\u2019s reserves.<\/p>\n But analysts warned US help, on top of the billions in multilateral loans Argentina has already received, would not solve the deeper political and economic challenges<\/a> that drove Milei into crisis.<\/p>\n \u201cYou cannot fix Argentina at this point only with the availability of more international official financing,\u201d said Alejandro Werner, director of Georgetown University\u2019s Americas Institute. As head of the IMF\u2019s western hemisphere department, Werner oversaw Argentina\u2019s record-breaking $57bn bailout in 2018. <\/p>\n The US\u2019s Exchange Stabilisation Fund, which Bessent says can be tapped to help Buenos Aires, has more than $200bn in assets. But the vast majority of this cannot easily be accessed, and the fund only has around $22bn of liquid securities.<\/p>\n Werner added: \u201cFinancing from the US will not be sufficient to stabilise Argentina unless a new political coalition is formed that will support Argentina\u2019s economic programme.\u201d<\/p>\n Recommended<\/p>\n![\"Javier](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2025\/09\/https:\/\/d1e00ek4ebabms.cloudfront.net\/production\/92521fa1-b4b9-4120-b261-9da5af0d00c6.jpg\")
Milei during a campaign speech this month before his party lost badly in Buenos Aires local elections \u00a9 Getty Images<\/p>\n<\/a><\/p>\n
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Demonstrators in Buenos Aires last week. Argentina\u2019s lower house voted by more than two-thirds to reject Milei\u2019s vetoes on a bill to boost the public university budget and another to boost health spending \u00a9 Tomas Cuesta\/Bloomberg<\/p>\n
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