Will the US bail out Argentina?

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The federal U.S. government is shut down and the Trump administration has slashed billions of dollars in aid to projects in the world's poorest countries.

But it's still found plenty of money to prop up Argentina, or maybe more accurately, to prop up its president, the flamboyant, the one and only, the chainsaw-wielding dog whisperer, Javier Millet.

This rescue scheme, spearheaded by US Treasury Secretary Scott Besson, involves buying Argentine pesos, lots of them, to support the currency's value. Well, bad news, Mr.
Treasury Secretary, sir.

You are badly out of pocket on this. The peso just keeps falling.
Today on the show, we found someone in the know to tell us, Why on earth is the US doing this?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in slightly soggy London.

And I'm joined down the line, yes, by that big taco fella, Robert Armstrong in New York, but also by an FT stalwart who really knows his stuff on Latin America, the FT's man on LATAM, Michael Stott, who right now is all the way over there.

in Brazil. Michael, we owe you big time.
Thank you for coming on. It's a real pleasure, Katie.

Where to start with the drama in Argentina? It's got like a long history of terrible policy, terrible populism.

So let's just take it that it's been like a mess financially and politically for decades and fast forward to the election of Javier Mele.

This guy is a one-off, right? Tell us about Javier Mele.

So he's a self-styled anarcho-capitalist, Casey. He is very fond of his pet dogs, his English mastiffs, to whom he speaks regularly for guidance.

He's also very fond of his sister Karina, a former cake seller on Instagram, who's now his chief of staff.

And he's set up his own political party to try and put his ideas into practice, which involve reducing the state by the largest amount possible, hence the chainsaw.

The difficulty with all this is that while Argentines loved the idea of a madman to sort out a mess, and he started well, the wheels have started to come off as he's progressed.

Let's just pause for a second on the starting well. I was quite sympathetic to what this guy was trying to do, all dogs, chainsaws, and wild hairstyles aside.

What was his policy platform and why did it work, at least at first?

So his policy platform was to slash public spending dramatically. and move the budget into surplus and to stop printing money to prop up the peso.

And he achieved those two things remarkably quickly, in part because of this unconventional style and through the use of executive decrees.

It was one of the most drastic fiscal adjustments ever achieved anywhere.

So in a sense, like hats off to the guy, you know, even organizations like the IMF have said, you know, props to him, strange style, but good results.

But in the course of doing this, he's been very much kind of of a mind with people like Elon Musk, people like the kind of libertarian right in the US, and with the Trump administration.

So I guess they were his bodies to turn to when, as you say, the wheels came off. Tell us about that.

How did the wheels come off and why?

Well, what happened, Katie, was he used the exchange rate as one of the main anchors to bring down inflation.

So his big thing was fighting inflation, and he succeeded in avoiding hyperinflation, but at the cost of maintaining an overvalued currency. And that also, of course, hit the economy.

So economic activity has been weak.

And he's had great difficulty in building up any reserves of dollars, which has been a big problem because Argentina has 17 billion of dollar-denominated debt coming due next year, not least to the IMF, which is a bit of a problem if you've got empty coffers.

Yes, and if you've got a super weak currency. Depreciating currency, it's becoming harder and harder to pay that debt down every day.
But so like, Michael, you know a lot more about this than I do.

So fill me in here. Like the tension has been building for quite quite a long time on the peso and on Millet, but it just suddenly cracked.

And I believe like the trigger for that is a landslide loss at a regional election. This just seems to be where it all just went pear-shaped.
That's right, Katie. Yeah.

So last month, Buenos Aires province, which is home to 40% of the entire population of the country, held its provincial election. And Millé lost badly.

The Peronists beat him by a big margin, wide margin, much bigger than expected.

And that really shook everybody up because there's a big midterm election due this Sunday, national congressional midterm election.

And so the feeling was if Millet did this badly in a provincial election, well, how on earth is he going to do in the national midterms?

And if he doesn't win the midterms, you know, what kind of a president will he be for the rest of his two years in office? This is the thing with Argentina, right?

It just appears to have this real fondness for extreme politics and for populist politicians.

So you mentioned the Peranas there, like they seem to swing between left-wing populism and right-wing populism. Like

what is that about? I just don't get it.

They're a nationalist populist movement which dates from the 1940s, taking their name from a general, Juan Domingo Perón, who was the father of the movement.

It's almost a way of life for many Argentines, Peronism, but it's almost like a huge political tribe, which has got in its ranks lots of government and public workers, lots of people who live on state benefits,

lots of people who've benefited from policies of industrial protectionism over the years. So a pretty large constituency that it's built up.

And as you say, yeah, it's veered politically, it's generally been left, but there was a notorious period of neoliberalism in the 1990s under another flamboyant character, the sideburn-wearing Carlos Menem.

who was fond of saying that he wanted carnal relations with the United States.

Oh, yeah.

That lasted for a decade, but ended very badly when his attempt to have a fixed exchange rate, a one-to-one with the US dollar, fell apart, confidence evaporated, the currency overvalued, and the whole thing collapsed in ruins

at the end of the 1990s. And if the Millay project fails and the country goes back to the Pironas, what are the likely economic consequences of that or financial consequences of that?

Aaron Powell, so I think we have to hope here that that doesn't happen.

It's not going to be good for Argentina or for the IMF or the private creditors.

No one really wins through that except the Peronist Party.

You're going to see almost certainly a return to the free spending policies, to the free borrowing that we saw before, the peso printing, the inflation.

There's no real sign that the Peronists have learned their lesson.

Their current leadership consists of Christina Fernando de Chishne, the former president, who is currently under house arrest after a conviction for corruption, and Axel Kisilov, the governor of Buenos Aires province,

who's fond of exactly these kind of unorthodox economic policies that have led Argentina onto the rocks before.

So the market got a sniff of, you know, maybe the Peronists are coming back and Peso started. tanking.
Walk us through how they kind of turned to the US as the rescue squad here.

So Millay, after the election, markets started selling the peso, loss of confidence.

Millais was trying to defend an exchange rate in floating, you know, in bands,

and he couldn't do it. Essentially, he was running out of reserves.
He was going to run out of money. The peso was going to burst out of its bands.
Confidence was about to collapse.

So he turns to his friends in America for help. His new friends, we have to say, because he actually had no relationship with Trump before being elected.
This is quite a recent friendship.

And they don't agree on on lots of things. Millay is a free trader.
He had no trouble with protectionism and tariffs.

So, you know,

they're sort of, in some ways, slightly strange political badfellows.

But Millay, since winning office, has adopted more and more of the kind of Trump-style culture war baggage and, you know, has styled himself very much as someone in the magazine, has sought close relations with Elon Musk, although it hasn't led to much investment in Argentina so far.

But so he turns to his American friends and says, you know, please help. And surprisingly, Scott Besant comes to the rescue.

So the sort of origin story of Scott Besant, U.S. Treasury Secretary, is that he cut his teeth in one of the most famous hedge funds in the world, which was run by George Soros.

And back in the day, George Soros, 1992, very, very famously, took on a central bank that was trying to defend a currency band and was lacking credibility. And he won.

This was the Bank of England, by the way.

But it got lots more credibility now. Anyway,

so here, Scott Besant can see a central bank that's lacking credibility and has got a flaky currency policy. And he says, I'm going to back the central bank.

I'm not going to do my usual hedge fund thing of trying to take them down.

I'm going to back the central bank. This is all like super upside down.
Like, Rob, how... How is this perceived in the States?

Are people sort of looking at this and saying, what is Scott Besant doing? Because on a certain level, I am.

Well, I think a lot of people in America remember the last major bailout of a Latin American currency

by a U.S. administration, which was Clinton in Mexico.
And that went brilliantly.

So it is encouraging that this kind of thing under the right circumstances

can

have the desired effect. And I think in the case, Michael will remember better than I will.
The United States ended up making money on the Mexico bailout, as I remember.

So that's on one end of the spectrum. On the other end of the spectrum, we have the problem that this doesn't fit very well with the kind of MAGA philosophy.

America first, not Argentina first. Yeah, the A in MAGA, one of those A's is not for Argentina.
So, and

of course, to a very important

American and Republican political constituency, which is farmers, Argentina is a rival.

Trump's terror fight with China

has led to China

not buying American soybeans, what I believe you call soya beans, for reasons known only to you, you English people.

And one of the major places that those beans are being bought instead is Argentina. So if you're an American farmer and everybody likes to go to interview a grouchy American farmer.

Yes, they give good interviews. They love whinging.

I'm a farmer's daughter, so I can say this. They will complain about anything.

So it is a politically awkward position for the president to be in in backing his Secretary of the Treasury here. Which may explain, by the way, something that I found striking.

And Michael, I'd be interested in your views on this. that there was something

a little tepid about Besant's comments about this bailout plan. I think the phrase he used was,

all options are on the table,

which does not exactly radiate confidence when you're trying, you know,

we don't want options, you know, we want muscle, as it were. Yeah.
I think that's absolutely right, Rob.

I mean, there's been an extraordinary lack of transparency around the whole idea of this US bailout. Besant talked originally about all sorts of options, including purchases of Argentine bonds.

Very few of these have actually materialized. What has materialized has been three bouts of US intervention to buy Pesos directly.

Argentine traders estimate the US Treasury spent about 400 million on this.

But the other ideas include the currency swap, which we're told has been formalized, but we don't know if it's been activated.

And Besant has sort of teased this idea of a 20 billion fund with the help from the private sector,

which

would support Argentine debt. But there are absolutely no details on this.

There are some reports that, unsurprisingly, the private sector wants some guarantees for the Treasury before putting any money on the table.

Boy, I wish I was a fly on the wall in those conversations when Scott Besant calls up the CEOs of major American banks and tells them he wants them to buy a ton of pesos.

One of those American bank CEOs is actually on the spot. So Jamie Dimon has arrived in Buenos Aires for a JP Morgan conference, which is being held in Buenos Aires this week.

Or just by coincidence. Yeah.

Oh, unlucky, Jamie, that

you're the bag man here. As far as they're concerned, you've turned up with bags full of money.
As Katie says, this is really Besant's world.

He is a macro trader and a currency trader by training and background.

And surely he still has a lot of connections to that world, the world of people who may have been or may still be speculating on Argentine currency and Argentine bonds.

Have we seen those connections, Michael?

Well, Rob, it's certainly true that Argentina has been a fantastic trade for hedge funds who bought the debt before Millet took office at less than 30 cents on the dollar and were able to sell at the peak of over 80, nearly tripling their money.

One of the hedge funds who has invested in Argentina is Discovery Capital, run by Rob Sidrone, who knows Besson. Now, of course, we don't know

what position they hold now, whether they hold the position at all or not, but we know they have been invested in Argentine debt.

The other thing, I guess, that's worth pointing out is just that the Americans have actually put very little money. down on the table so far, right?

I mean, if we believe 400 million in currency intervention,

probably not a lot more. We don't know if the swap line's even been activated.
So they could actually walk away from this with pretty minimal losses, I think, potentially.

Michael, let me put you on the spot.

Is

Millay,

with the help of the United States, going to be able to get himself out of this hot water? Are all these efforts going to work?

I think it depends first and foremost, Rob, on the Argentine voters. So they will decide on Sunday whether to give Millay Millay more strength in Congress or whether to endorse again the Peronists.

And if they go for the Peronists, I think all bets are off. Trump has been pretty clear that if Argentina votes what he would call the wrong way, he's not very interested in helping them.

So an awful lot depends on that election. And the polling is contradictory.

I've seen polls giving a significant margin of victory to Peronists. I've seen polls giving a margin of victory to Millay's party.

Nobody really knows. Can we get democracy without the voters?

Yeah, exactly. People keep voting wrong.

It is quite odd when you see this process of pulling together a bailout.

Normally, the donor country in this situation is sort of studiously neutral and says, this isn't contingent necessarily on one guy being in charge or another.

But Trump is being extremely straightforward about this, right?

He has said, whether he means it or not, we don't know, but he's said, if Malay loses, I'm out.

So does Malay use that within Argentina to sort of, you know, does he wave that in front of voters and say, see, you've got to vote for me, otherwise Trump will back out?

Or is that sort of toxic in itself with the voter base?

Well, Christina Kirchner, the Perodist leader, seized on this very quickly and posted very fast Trump's remarks saying underneath, Argentines, you know what to do now.

So she thought it was a win for her. Yikes, high stakes here.
Michael, just to put you on the spot one more time. Like you say, the polling is all over the place.

So it's it's not clear how Millet will do in these elections at the weekend.

Is your expectation that he will scrape by and this will all be fine, or that he is about to lose and open the gates of hell? The smoke signals don't look very good. His foreign minister just quit.

And if you're trying to negotiate US help, not a great time to lose your foreign minister.

His justice minister has also quit, and he's announced that he'll do a cabinet reshuffle after the election, election, but he hasn't said what it'll involve.

So, none of that has exactly inspired confidence.

I think he has to win on Sunday by a significant margin over the Peronists to put the fears to bed.

If the Peronists do triumph, and there's a definite possibility of that, I think it's game over for Millay.

Yeah, it was a high-high drama. It sounds like we will come back to this probably next week.
In the meantime, let's just take a quick break and come back in just a sec for long short.

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Already, it's time for Long Short, that part of the show where we go long, a thing we love, Argentine pesos, optional, or short, a thing we hate. Michael, since you're new, what you got?

I'm Long Palestrino, Katie. Long, what now?

Palestrino, one of the greatest composers who ever lived.

We have a cultured person on the show, Katie. I think this is the first.

We should never make this mistake again, Rob. He's making us look really silly.
Tell us why you are long Palestrina at this moment of your life.

There is nothing better for a world with very short attention spans than the chance to luxuriate in a composer who

has perhaps the finest sense of harmony of any composer who ever lived. I mean to experience Palestrina's soundscapes is to enter a different world, a world of the late Renaissance.

It's the most fantastic meditation that you can do. I love this.
But let me just tell you, if we have you on again, this is far too highbrow. Yeah.

I'm going to go long professional wrestling now, just to

make

as powerful a cultural contrast as I can. Katie, what do you got? What are you long and short? I'm long bubbles.

So, like, everyone has danced around this kind of big tech trade in the U.S. stock market for the longest time.
And then, you know, it's, ooh, oh, you know, do we dare call this a bubble?

And now suddenly everyone's like, no, no, yeah, sure, this is a bubble. This is obviously a bubble.
It's just a case of like when it, when it deflates or pops. So I'm long bubbles.

Michael, you've been a gem. Thank you for coming on.
We may well get you one again if this situation goes more pear-shaped from here. Rob, I will chat to you next week.

Listeners, tune in wherever you get your podcast from next Tuesday.

Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein.
Topha Vorges is the FT's acting co-head of audio.

Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free.
A 30-day free trial is available to everyone else.

Just go to ft.com slash unhedged offer. I'm Katie Martin.
Thanks for listening.

Now then, what are you up to on the weekend of November the 8th?

I will be at the fabulous Kilconomics Festival in Kilkenny in Ireland, appearing on a bunch of panels and also doing a special recording of the Unhedged podcast.

The festival is a mix of economics and comedy, and I know that sounds terrible, but it is honestly great fun. Grab your tickets online, and I'll see you there.