US Launches $20B Financial Rescue of Argentina

The peso has been under severe pressure since last month when Milei’s government fell into a political crisis and investors began to doubt the sustainability of his exchange rate policy, which has kept the peso strong in order to hold down inflation.

Milei has sought to keep the peso within fixed exchange rate bands and prevent it from devaluing sharply before the crucial elections at the end of the month.

Local economists estimate Argentina’s Treasury has nearly drained its liquid dollar reserves by selling $1.8bn in the past seven sessions to keep the peso away from the lower limits of the band.

International investors in Argentina’s dollar bonds had feared the country would burn through much of its reserves before this month’s election if it did not receive US support.

The central bank has about $13bn remaining from an IMF loan, which it can sell in currency markets when the peso hits the lower limit of the band under the terms of a bailout the fund delivered in April.

Many independent economists have said the bands currently overvalue the peso, and prior to the US announcement, local dollar futures prices implied a substantial devaluation of the peso after the elections.

The US Exchange Stabilization Fund, an emergency fund run by the US Treasury, most famously lent $20bn to support Mexico weeks after its currency collapsed in December 1994. The country drew down $12bn and repaid the US at a profit.

The ESF’s last high-profile direct FX intervention was as part of US and G7 efforts to sell the yen in 2011 after Japan’s earthquake that year.