The ‘JPMorgan boys’ behind the US bailout for Argentina

Now Caputo is orchestrating the trade of a lifetime, persuading the U.S. government to go all-in on President Javier Milei just when it seemed his economic overhaul of Argentina was in jeopardy. Caputo and Treasury Secretary Scott Bessent, a former currency trader himself, came up with a $20 billion American rescue plan for Argentina that has drawn some credit for Milei’s surprisingly good showing in pivotal midterm elections last month.

Backstopping Milei’s austerity measures and foreign-exchange policies with the U.S. government’s help will be a high-wire act for both Bessent and Caputo, along with the Argentine central bank and ministries that he has packed with other former JPMorgan executives.

“The irony of what’s happening now is that both Bessent and Argentina’s JPMorgan boys are no longer on the side of brokerage trading desks," said Arturo Porzecanski, an American University economist who closely tracks Argentina. “They are now trying to steer the market forces they always rode."

The challenge is to prevent Argentina from falling into a pattern that has dogged Latin America’s third-biggest economy for decades. The country has routinely failed to generate enough dollars to keep its own currency, the peso, pegged at a fixed level. That has caused catastrophic runs on the peso, even after Argentina received tens of billions of dollars from the International Monetary Fund. Argentina is the fund’s largest debtor.

The country has defaulted on its debt nine times, most recently in 2020, often through attempts to reduce inflation by keeping the peso artificially strong. Milei once described the peso as excrement, but now he is pursuing a similar policy of propping it up that some economists say proved ruinous for his predecessors.

Caputo says he is against allowing the value of the Argentine peso to be fully determined by currency markets now, primarily because Argentina’s foreign-exchange market is tiny and volatile in a country where the dollar is a hedge against turmoil.

“If anyone thinks they can float freely in a market that trades around $100 [million] or $200 million a day, I think they’ve never traded in a market," Caputo said in a presentation to business leaders on Thursday.

This time, the Trump administration is supporting Argentina with a $20 billion currency swap to help keep the peso afloat by allowing the central bank to sell dollars in the market. The U.S. is betting that Milei is fundamentally different from past Argentine leaders, and that Caputo and his team will succeed in completing a free-market overhaul that would allow Argentina to regain access to international capital markets.

“We used our financial balance sheet to stabilize the government, one of our great allies in Latin America, during an election," Bessent told MSNBC last week. In addition to the currency swap, the Treasury also injected an estimated $2 billion to head off a pre-election run on the Argentine peso. Bessent said the U.S. government made a profit from the transactions, but details haven’t been disclosed.

U.S. officials say Argentina’s strong economic fundamentals, including structural changes already under way, should generate significant dollar-denominated exports and hard-currency reserves.

“Thanks to the prudent fiscal strategy implemented by Minister Caputo and his economic team, Argentina is well on its way to anchoring a prosperous Latin America," said a Treasury spokesman.

Caputo was instrumental in pitching the $20 billion package to Bessent, said people familiar with the talks. As former traders, they came from the same world and spoke the same language, these people said. One visible figure in Caputo’s team is his deputy minister for economic policy, José Luis Daza, a U.S.-trained economist and JPMorgan veteran seen as having a relevant role in talks with Bessent because of his past work on Wall Street. Other former JPMorgan executives close to Caputo include Foreign Minister Pablo Quirno and central bank Gov. Santiago Bausili.

Without U.S. help, there would have been another currency crisis and perhaps a very different election outcome, said Joaquín Cottani, who served as Daza’s predecessor at the start of the Milei administration.

“The Trump administration put some of its credibility at stake," he said.

Caputo led Argentina’s central bank in 2018 during the administration of former President Mauricio Macri. After three months, he resigned, under pressure from the U.S. and the IMF to stop burning billions of dollars to prop up the peso, said people familiar with the situation.

A spokeswoman for Caputo disputed the characterization that he resigned as international pressure on the Macri government intensified to abandon his central banker’s strategy.

A person with knowledge of Caputo’s work as central-bank chief said he spent a lot of time around its trading desks. He was seen as an economist who enjoyed trading more than macroeconomics, the person said.

At the time, Caputo wanted greater leeway in the use of IMF money “to confront the will of the market with all guns blazing," said Alejandro Werner, who served as the IMF’s Western Hemisphere chief, in “Argentina en el Fondo," a book he wrote with Argentine journalist Martín Kanenguiser.

Caputo’s unconventional strategy aimed to use an overwhelming amount of dollars to keep the peso afloat in a country that lacked developed financial markets and solid frameworks for macroeconomic, fiscal and monetary policy, the authors said.

Caputo thought that if he won the bout with the market, “one day all the problems would be solved," Werner and Kanenguiser wrote.

Back then, Caputo told IMF officials that Argentina was facing liquidity issues but didn’t face a solvency problem. It was a similar argument that the Milei administration used to persuade the U.S. this year for a backstop. Macri lost his presidential re-election bid in 2019. Months later, the administration of Peronist President Alberto Fernández defaulted on debt.

Caputo said on Thursday the Milei administration would never default.

Caputo’s team has successfully tamed inflation to about 30% from more than 200% two years ago, cutting red tape and imposing hefty spending cuts to narrow the budget gap.

They want to let the peso depreciate gradually through a rigid foreign-exchange regime based on trading within a band. It has resulted in the peso ranking among the world’s worst-performing currencies this year, but the pace of depreciation has been slower than the rise in consumer prices. Caputo and Milei dispute the notion that the peso is overvalued.

Exchange-rate stability is crucial in economic overhauls aiming to control runaway inflation, said Ernesto Talvi, who served as chief economist of Uruguay’s central bank in the early 1990s, when the tiny South American country faced similar challenges.

“You need an anchor that gives people peace of mind," he said. Uruguay lifted its trading band system after lowering inflation from 140% to single-digit levels over a five-year period.

But Argentina’s strategy has depleted its already thin hard-currency reserves, Cottani said.

Accumulating foreign-currency reserves was a condition for Argentina to get an IMF loan of $20 billion in April. The IMF granted Argentina a waiver in August after missing such goal. It also lowered Argentina’s foreign-reserve targets for this and next year. If Argentina is to meet IMF targets, it would need to boost reserves by about $15 billion by the end of 2026.

Caputo said Thursday that Argentina will comply this time and surpass IMF goals. “Building up reserves is a priority for us," he added.

Write to Santiago Pérez at santiago.perez@wsj.com