U.S. Lifeline or Election Favor? Argentina's Peso Gambles

Argentina's President Javier Milei is poised for a significant political comeback after his libertarian party, La Libertad Avanza, secured a strong lead in Sunday's midterm elections, according to early results. With 92% of votes counted, the party claimed 41% of the vote, securing 64 out of 127 lower-house seats, while the Peronist opposition lagged at 24.5%, according to Bloomberg. The outcome marks a reversal from a September provincial election loss that had triggered a peso selloff and U.S. financial intervention. The win bolsters Milei's push for austerity-driven reforms, which align with Trump administration priorities and have drawn both international support and domestic criticism.

The U.S. Treasury's involvement in stabilizing Argentina's economy intensified ahead of the vote. A $20 billion currency swap agreement with Argentina's central bank was finalized last week, alongside direct Treasury purchases of pesos to curb the currency's slide, according to a Taxscan report. Secretary of the Treasury Scott Bessent emphasized the swap line—funded by the Exchange Stabilization Fund—as a "bridge to a better economic future," rejecting claims of a "bailout" and assuring Congress that taxpayer funds would not be lost, as reported by Investing.com. The move, however, has sparked debate over its timing, with critics labeling it an "election-season favor" aimed at securing Milei's political survival.

Financial markets initially reacted with volatility, as the peso's five-day losing streak ended with a 0.1% gain, though analysts caution that structural challenges—such as inflation above 100% and a fragile fiscal position—remain unaddressed. JPMorgan and Citigroup entered Argentina's foreign exchange market to support the peso, a move first reported by the Buenos Aires Times, while U.S. officials reportedly sought $20 billion in private-sector funding to bolster Argentina's debt markets. Fitch Ratings acknowledged the swap agreement as a temporary shield against a ratings downgrade but stressed that long-term stability requires Argentina to build its own foreign exchange buffers, according to Seeking Alpha.

Milei's victory also has strategic implications for U.S. influence in Latin America. The Trump administration has positioned Argentina as a counterweight to China's growing economic footprint, which includes a smaller swap line with Beijing. The U.S. International Development Finance Corporation (DFC) is separately negotiating critical minerals and infrastructure deals with Argentina, aiming to lower the country's debt profile while expanding American economic ties, according to a Reuters report.

Despite the apparent electoral success, Milei's agenda faces hurdles. A 35% vote share or higher was seen as critical to securing veto-proof majorities in Congress, yet even a strengthened position may not translate to swift reforms. JPMorgan analysts noted that while U.S. support could reduce political risk premiums, Argentina's risk of default remains high without credible measures to rebuild international reserves, as reported by U.S. News. Additionally, Milei's economy chief, Luis Caputo, has ruled out changes to the peso's trading bands—a policy critics argue artificially props up the currency.

The election outcome has also reignited domestic political tensions. Opposition figures accused the U.S. of meddling in Argentina's affairs, with former Defense Minister Jorge Taiana criticizing Trump for "extorting the Argentine people" on social media. Meanwhile, U.S. lawmakers have demanded transparency on the swap agreement's terms, including collateral and potential taxpayer exposure.

As Argentina's markets brace for post-election clarity, the path forward remains uncertain. While Milei's party appears set to strengthen its congressional hold, the sustainability of U.S.-backed economic policies—and the peso's stability—will depend on whether the administration can deliver on structural reforms without deepening fiscal vulnerabilities. For now, the peso's modest rebound and a rally in dollar bonds suggest investors are cautiously optimistic, though many remain wary of a "Black Swan" event should political or economic risks resurface.