Treasury's Peso Pact: Liquidity Lifeline or Political Bailout?

The U.S. Treasury has finalized a $20 billion currency swap agreement with Argentina's central bank to stabilize the peso and address economic volatility, Treasury Secretary Scott Bessent announced on Thursday. The deal, part of broader financial support measures, includes a direct purchase of Argentine pesos and a standby credit line through the Exchange Stabilization Fund, aimed at preventing excessive currency fluctuations and bolstering investor confidence US buys Argentine pesos in deal with Trump | AP News^[1]. Bessent emphasized the Treasury's readiness to take "exceptional measures" to stabilize markets, following four days of negotiations with Argentinian Finance Minister Luis Caputo in Washington, D.C. US Buys Argentine Pesos, Finalizes $20 Billion Currency Swap^[2].

The swap line and related tools are designed to inject liquidity into Argentina's foreign exchange markets, which have faced strain due to the country's $41.8 billion in outstanding IMF debt and a depreciating peso. Argentina's government has also cut agricultural export duties to zero until October 2025, seeking to incentivize dollar inflows US Treasury announces full-scale bailout for Argentina: …^[3]. The U.S. intervention aligns with President Donald Trump's advocacy for free-market reforms and his recent endorsement of Argentina's President Javier Milei, whom he praised for "fantastic job" managing the economy. Milei celebrated the deal on social media, lauding Caputo as "the best Minister of Economy in all of Argentine history" Fact Check: What is Argentina planning on using the american 20 …^[4].

The package has drawn criticism from U.S. farmers and Democratic lawmakers, who argue it amounts to a bailout for a country that benefits from soybean exports to China, potentially harming U.S. agricultural interests. Critics also question whether the support rewards political ties, as Milei faces critical midterms in October 2025 US Buys Argentine Pesos, Finalizes $20 Billion Currency Swap^[2]. Despite this, the Treasury clarified that the measures are not a traditional bailout but a framework to address liquidity needs. Bessent reiterated that the U.S. is prepared to purchase Argentina's dollar-denominated bonds "as conditions warrant," a move expected to support bond prices and reduce rollover risks US Treasury announces full-scale bailout for Argentina: …^[3].

Market reactions to the announcement were positive. Argentine bonds surged, stocks extended their recovery, and the peso strengthened against the dollar, reflecting improved investor sentiment U.S. Treasury announces rescue plan for Argentine economy^[5]. The World Bank and Inter-American Development Bank (IDB) have also pledged support, with the former accelerating a $4 billion disbursement to boost mining, tourism, and energy sectors, while the IDB announced plans to expand operations in Argentina through sovereign and private financing U.S. Treasury announces rescue plan for Argentine economy^[5].

The U.S. Treasury's intervention underscores a strategic focus on regional economic stability and alignment with Argentina's reform agenda. However, the lack of detailed spending plans for the $20 billion package leaves uncertainty about its long-term fiscal impact. As the agreement unfolds, market indicators such as peso exchange rates and sovereign bond yields will be key metrics to assess its effectiveness in preventing a default scenario and supporting Argentina's economic reforms Fact Check: What is Argentina planning on using the american 20 …^[4].