The U.S. has stepped in with an extraordinary bailout of Argentina. Here’s what it means

The Treasury Department has extended a financial lifeline to Argentina in apparent hopes of heading off an emerging market financial crisis that could spread to U.S. shores.

In a move that Treasury Secretary Scott Bessent announced Thursday on social media site X, the U.S. is providing a $20 billion currency swap line with Argentina’s central bank — essentially exchanging stable U.S. dollars with volatile pesos.

The move comes amid liquidity concerns in Argentina that threatened stability for the country as it faces key midterm elections.

Providing the swap line “marks a pivotal moment for Argentina’s financial stability,” Diego Celedon, head of equity strategy for the region at JPMorgan Chase, said in a client note. “The U.S. support acts as a circuit breaker, halting the negative feedback loop that had threatened to deepen Argentina’s economic strain.”

There are equal parts economic and political stakes with the venture, which marks the first U.S. intervention of this nature since rescuing Mexico in 1995.

While Argentina poses little systemic risk, it can still matter in terms of flight risk for capital along with volatility in debt and commodity markets. That chance was deemed worth the risk of potential Argentinian default.

“Overall, the American intervention has transformed Argentina’s short-term outlook, but the administration must now leverage its political capital to fully capitalize on this window of opportunity,” Celedon wrote.

The immediate market reaction was for the peso to appreciate sharply against the dollar Friday.

However, an exchange-traded fund pegged to the country’s industrial leaders, the Global X MSCI Argentina ETF, slumped Friday, indicating concerns that the American backstop may not be enough.

“It’s unclear why the Trump administration is providing a de facto bailout of the Argentinian peso when there is no significant financial or economic relationship between the two economies,” said Joseph Brusuelas, chief economist at RSM.

“It’s entirely unclear to me that Argentina will not choose to devalue its peso after its election later this,” he added. “Therein lies one of the greater risks of providing $20 billion Treasury supported swap line to Buenos Aires.”

In addition to economic and market matters, the U.S. has a significant political stake in what’s happening in Argentina.

Oct. 26 elections will determine the fate of President Javier Milei’s government, which has become an import ally for the U.S. in the region. With investors jittery over global growth and election-year uncertainty, the bailout shows Washington is committed to keeping credit markets calm at home.

In his announcement of the deal, Bessent said it was in response “a moment of acute illiquidity” and said the U.S. was in a unique position to help.

He further mentioned the country’s efforts at fiscal reform that will “will generate significant dollar-denominated exports and foreign exchange reserves.”

Still, the country’s shaky fiscal history generated caution that the U.S. essentially could be throwing good money after bad as Argentina has a long history of defaulting on its debts.

“Milei has succeeded in sharply reducing inflation but has struggled to stabilize the peso’s exchange rate against the dollar,” said Lourdes Casanova, director of the Emerging Markets Institute at Cornell University. “Given that currency trading is the largest financial market in the world … no amount of reserves can single-handedly offset that pressure.”

The move also was met with criticism elsewhere, ranging from the soundness of the Argentinian political and economic system to the White House’s use of the Financial Stability Fund for the liquidity measure.

“While the government is ‘shut down,’ the Treasury Department officially started its bailout of Argentina,” Rohit Chopra, director of the Consumer Financial Protection Bureau, said in a statement. “We are now actively pumping dollars into Argentina in exchange for the country’s plummeting peso, rather than helping people here at home.”

Bessent, though, said Milei’s fiscal policies are “sound” and the success of the country is systemically important.