“I love being the mole in the state. I’m the one who destroys the state from within,” proclaimed Javier Milei soon after his election to the presidency of Argentina.
Milei took office in December 2023 and would soon become Donald J. Trump’s “favorite president.” But it turns out that a president who does not believe in government, and in fact wants to destroy it, is not likely to have an effective strategy for recovery in an economic crisis.
Milei has taken Argentina to new records of indebtedness, signing up to add an enormous $42 billion to Argentina’s foreign public debt on April 11. The IMF led the pack, as is the custom, lending the country $20 billion with an unprecedented $12 billion up front. Then the World Bank joined in with $12 billion, and the Inter-American Development Bank with $10 billion. All announced on the same day.
But it wasn’t enough. This week, U.S. Treasury Secretary Scott Bessent announced another $20 billion in the form of a currency swap. The United States has also intervened in the currency markets to buy pesos, and said it is "ready" to buy Argentine sovereign bonds.
Will this commitment by the most powerful government in the world save the Argentine economy and Milei’s government? Probably not. One problem is the debt itself, as we've seen in Argentina's recent history. The IMF, in 2018, made a record-breaking $57 billion loan to a previous right-wing Argentine president, Mauricio Macri. As with this year’s lending, that loan was obviously politically driven; worse still, the loan and its attached destructive, pro-cyclical conditions played a major role in creating the mess that we see today.
Another problem is the government’s current economic strategy, or lack thereof. Milei has brought down inflation by propping up the value of the peso. This reduces inflation by lowering the price of imports, and potentially helps to stabilize inflationary expectations and financial markets.
But the financial markets are not convinced that the current exchange rate is sustainable, and capital has been fleeing the peso. This has caused the Argentine Treasury and Central Bank to burn through billions of dollars in recent weeks, leaving very little in international reserves. This cannot go on indefinitely.
The Trump administration seems to have made an unprecedented commitment to stabilize Argentina’s currency and bond markets. But that commitment has run up against a very big problem: the Argentine government’s gigantic and unsustainable debt. Argentina is now on the hook for nearly half of all the IMF’s non-concessional lending in the world. Argentina’s sovereign bonds are uniformly rated as junk—none of the rating agencies assign investment-grade status to them. The holders of these bonds are therefore making a highly speculative bet.
Holding Argentine bonds today is something like holding U.S. stocks in 2000, just before the $10 trillion bubble burst. Many were holding these stocks in the hope that they would be able to get out fast when they saw signs that the bubble was about to burst. This type of speculation—and Argentine financial markets are home to other types of damaging speculation that have enriched currency traders over the past year too—makes the economy much more vulnerable to various economic shocks, trends, and news reports.
Ironically, the Trump administration’s commitment has added another source of instability—dissenting statements from U.S. officials, politicians, and even pundits. Many have raised doubts about the U.S. commitment to pour tens of billions of dollars into propping up the Argentine peso. “Even while the Trump administration is trying to fire more people and shut down more services, Trump is carefully keeping open the office at the Treasury Department responsible for executing his bailout of Argentina’s financial markets,” said Senator Elizabeth Warren (D-Mass.) on the Senate Floor on Tuesday, after Republicans blocked a vote on her “No Argentina Bailout Act.”
President Trump himself may have made one of the more destabilizing statements of the week, also on Tuesday, while meeting with Milei in Washington. Referring to the October 26 congressional election in Argentina, he said of Milei, “If he wins we’re staying with him, and if he doesn’t win, we’re gone.”
Milei's net approval has fallen as his multiple corruption scandals have replaced inflation as the voters’ most important issue. His chainsaw approach to the national budget and the suffering that it has caused have also become increasingly unpopular. On September 4, the Congress overrode a veto that had blocked increased spending and protections for people with disabilities. It was the first override of a full presidential veto in more than 20 years. A few weeks later, it overrode another veto, over spending on pediatric health services, and public universities.
As much as it goes against Milei’s fervent commitment to a 19th-century vision of a "free-market" economy, Argentina will need an actual government—one that is willing and able to take necessary and constructive steps to resolve its current crisis.
Mark Weisbrot is co-director of the Center for Economic and Policy Research. He is the author of Failed: What the ‘Experts’ Got Wrong About the Global Economy (Oxford University Press).
The views expressed in this article are the writer's own.
