At the OECD, the IMF, and at Davos, there will probably be a few wry smiles, and a sense of Schadenfreude. Javier Milei, the chainsaw-wielding libertarian President of Argentina who promised to destroy the economic establishment by cutting taxes and dramatically reducing the size of the state, is now facing a financial crisis of his own. The United States is offering to step in with a bailout, but why? Milei should sink or swim in the markets he champions. A rescue package from the Trump administration will prove a mistake.
It is turning into the toughest week yet for the Milei experiment. After setbacks in local elections, the currency markets have lost faith, the peso has plunged, and that will make it very hard to finance the country’s huge debts. The progress of the last two years may well be wiped out in a few days. In response, the US Treasury Secretary Scott Bessent has pledged to step in with support, and Millei is set to meet President Trump later today to see if they can work out a deal.
Of course, we can see what is in it for both sides. Milei needs an injection of cash to support the peso, and to buy himself time for his liberalisation of the Argentinian economy to start boosting growth. For Trump, it is a chance to support an ally on the radical right (although Milei is far more of a traditional liberal than the President) while keeping Argentina closely tied into the US’s orbit. It could be a win-win for both sides. Indeed, as soon as Bessent made his remarks, the peso rallied, along with Argentina’s stock and bond markets, and that may well go a long way to calming the crisis. Not many speculators want to take on the US Treasury.
There are two catches, however. To start with, Argentina is a bottomless pit. It has already been through 23 bailouts by the IMF since it joined the fund in 1956, making it both its biggest client and its biggest debtor. The troubled financial history of the country tells us that once you start ‘rescuing’ Argentina it never stops. It will always be back for another few billion. Next, and more importantly, Argentina needs to move to a floating peso, or else simply ‘dollarise’ its economy by switching completely to the American currency, as Millei pledged during his election campaign. A ‘loan’ from the US is just a mushy compromise, and the whole point of Millei was to sweep those away. It will only postpone the reforms that still need to be made, and potentially make it harder to implement them. The Millei experiment can still work. But a bailout from President Trump is not the solution to the crisis it now faces. It will make the mess worse.
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