US President Donald Trump’s $20 billion rescue plan falters as Argentina’s peso tumbles

Argentina’s peso extended its decline on Friday, even after the United States Treasury Department confirmed it had intervened in both official and parallel markets to support the currency. The move came as part of a $20 billion rescue effort aimed at stabilizing Argentina’s fragile economy ahead of key legislative elections later this month, Bloomberg reported.

The peso tumbled as much as 5.2 per cent to 1,475 per dollar before closing at 1,450, only a few pesos away from its record low. In the parallel market, the currency also fell 3.7 per cent, showing Washington’s unprecedented efforts failed to restore investor confidence.

Treasury Secretary Scott Bessent announced on X that the US “has the capacity to act with flexibility and with force to stabilize Argentina”. It was the first time the US acknowledged buying pesos in the blue-chip swap market, an unofficial but legal financial exchange rate used widely in Argentina.

Doubts over Donald Trump administration’s $20 billion rescue

The Trump administration’s decision to step in with $20 billion in aid, including a proposed currency swap line and a private investment facility, was meant to shore up President Javier Milei’s economic reform agenda. However, analysts say the intervention has only deepened uncertainty.

Banctrust economist Juan Sola told Bloomberg that the intervention was not enough to prevent a rise in both the official and parallel exchange rates. Sola added, “Next week we will likely see increased pressure unless the Treasury boosts its intervention.”

Speculation is mounting that Milei will be forced to devalue the peso after the October 26 midterm elections, especially after his party’s setback in recent provincial polls. The market turmoil was compounded by Trump’s threat to withdraw aid if Milei underperforms in the upcoming polls.

US defends its role, IMF backs continued engagement

Treasury officials continue to express that the peso is “undervalued” and that US support highlights a strong commitment to Argentina. “If you want to be an optimist, it’s an indication of the strength of U.S. commitment,” Walter Stoeppelwerth, CIO at Grit Capital Group, told Bloomberg.

The International Monetary Fund also weighed in with Nigel Chalk, deputy director of the Western Hemisphere Department, suggesting to Reuters, “IMF staff have been very engaged with both Argentina and US Treasury through this process.” But he would not say whether the IMF would have preferred for Argentina to let its currency float freely.

Market reactions: Rates and bonds swing wildly

The bond prices of Argentina made a brief turnaround following US intervention, but then fell again. Short-term interest rates slumped significantly, with the overnight collateralized peso repo rate, known as caución, decreasing from above 100% to approximately 53 per cent, the Bloomberg report added.

The drop came when the Argentine government was unable to roll over local currency debt and injected more pesos into the market, creating more volatility. Citigroup Inc. and Banco Santander SA reportedly facilitated buying pesos for the Treasury, but both were unable to divulge the size of their operations.

FAQs

Q1. Why is Argentina’s peso falling despite US support?

A1. Investors fear President Milei will be forced to devalue the peso after the October 26 elections, undermining US efforts to stabilize the currency.

Q2. What is the US Treasury doing to help Argentina?

A2. The US has been buying pesos in official and parallel markets and plans to extend a $20 billion currency swap line to Argentina’s central bank.

Q3. What is the blue-chip swap market?

A3. It is a legal parallel exchange rate in Argentina where investors trade local and foreign securities to access US dollars amid currency controls.