Trump bet $40B on Milei, but what do Americans get out of it?

It has been a busy week for U.S. policy towards Argentina.

Treasury Secretary Scott Bessent announced Wednesday that the U.S. would be doubling the assistance it is marshaling for Argentina from $20 billion to $40 billion. The increase comes ahead of legislative elections on October 26 that will elect half the lower house and one-third of the upper house, and represents an increasingly strenuous effort in Washington to bolster Argentine President Javier Milei financially and politically.

Ironically, one reason for an even bigger bailout package might have been a comment by the White House itself. Heading into a meeting with President Donald Trump on Tuesday, an optimistic Milei is reported to have said “we will have dollars pouring out of our ears.” During the meeting, Trump burst that bubble, remarking that “if he loses, we’re not going to be generous with Argentina,” a remark that immediately hit markets.

A day later, Treasury Secretary Scott Bessent tried to remedy the situation, saying that beyond the original amount the U.S. had committed to lend Argentina, the Trump administration was coordinating the delivery of another $20 billion for the country from banks and sovereign wealth funds. Bessent invoked an “economic Monroe Doctrine” and said the outcome of upcoming elections in Chile and Colombia depended on the fate of Milei’s presidency. He thus grounded the need for assistance in the possibility that electorates in those countries might follow the cue from Argentine voters despite their very different circumstances (as detailed below).

Milei’s first term ends formally in 2027, but he is under severe pressure from domestic politicians and international investors. Argentina was a darling of the markets following Milei’s election in 2023 as he pushed through radical reductions in the size of government by decree, arguing that it was the only way to deliver the country from a long history of high inflation and serial defaults.

However, in early September, his party received a drubbing from voters tired of austerity in the province of Buenos Aires, home to roughly 40% of the population. This hit Argentine bonds and led to a sharp depreciation of the Argentine peso. Local and foreign investors fled, worried that the results in the provincial election were a harbinger of worse to come in the congressional polls.

By the end of September, the U.S. had stepped in, offering Milei’s government a level of support practically unprecedented in recent history (and yet apparently still not enough). The Treasury offered an arrangement where Argentina could borrow dollars against pesos, hinted that it might buy the country’s debt, and later even purchased the country’s currency in foreign exchange markets.

While Mexico did receive ample support from the U.S. in 1995, when that country suffered its own devaluation shock, the U.S. Treasury did not actually buy Mexican pesos on that occasion, unlike its actions during the current intervention in Argentine markets. And the U.S. rescue efforts for Mexico were for a country that was a member of the North American Free Trade Agreement, already the U.S.’s third-largest trading partner (it is now the biggest), and supported a new president about to enter a six-year term after an election.

In Argentina’s case, however, the U.S. is assisting an embattled leader facing an election. And Trump’s own remarks suggest that American support depends upon the electorate delivering the “right” result, from Washington’s point of view. The desired result would be able to deliver a legislature that is unable to override Milei’s vetoes of congressional measures, as has happened repeatedly in recent weeks.

Bessent subsequently walked back Trump’s threats a bit, but the essence remains that American support depends on the legislature allowing Milei free rein with his policies.

But that in turn makes the calculus behind administration support even more tricky. Explicit reminders that the U.S. will turn off the spigot if Argentina votes “wrong” could either scare the electorate into voting “the right way” or lead to further falls in Milei’s popularity. And from the point of view of investors or wealthier Argentines, regardless of how they feel about Milei, the uncertainty not just around political outcomes but also around the U.S. reaction could be a motive to exit the country’s assets.

Compounding matters, there is widespread agreement among economists that the Argentine peso needs to depreciate, so that even if Milei does get a favorable result in the legislative elections, he could decide to devalue the peso once past the hurdle of the ballot. Which, of course, could be a prudential reason to exit the peso before the election.

All this raises the question of whether Washington’s efforts will help restore confidence in Argentina’s finances and in Milei or serve as a subsidy for fleeing locals and foreigners (including some well-connected ones) by making dollars more easily available.

And that is not the sole controversy here. American farmers are livid that the U.S. is channeling assistance not just to a competitor, but to a country so desperate for dollars that it lifted a grain export tax briefly, allowing it to sell 20 cargoes of soybeans to China even as Chinese soy imports from the U.S. have plummeted.

Why is Washington doubling down on a strategy that carries such financial and political risks? U.S. officials have insisted that the Milei experiment could turn around an Argentina that has been hobbled by serial financial crises over several decades. But over the last three decades, Argentina has had two other presidents — Carlos Menem and Mauricio Macri — who tried measures not that different from those pushed by Milei and yet ended up failing the tests of both politics and economics.

Similarly, Bessent’s argument that bolstering Milei is essential to keep the left from winning upcoming elections in Chile and Colombia is also unconvincing. First of all, the sheer scale of Argentina’s financial problem dwarfs those of most other countries in South America, so it is unclear what lessons other electorates might draw whether Milei succeeds or fails.

Argentina owes about nine times as much money to the International Monetary Fund as does Colombia (Chile has no IMF program) and is the Fund’s largest debtor, accounting for roughly a third of all outstanding IMF lending. Similarly, for all of Milei’s success at getting Argentina’s runaway inflation under control and bringing it down to 31%, inflation is only about 4-5% in Colombia and Chile.

The incumbent parties in both Colombia and Chile are on the left, suggesting that simple anti-incumbency might be more likely to deliver a result congenial to Washington than the U.S. inserting itself conspicuously in their local campaigns, “continentalizing” their elections, and invoking the Monroe Doctrine.

By all accounts, a previous attempt to do so in Brazil by hitting the country with a headline 50% tariff in retaliation for the criminal conviction of former President Jair Bolsonaro only ended up boosting the popularity of President Lula, even if current polling indicates that the election will very likely be close. But beyond the question of whether attempts to intervene in the elections of other countries can work, such attempts are inadvisable because they draw Washington into the routine domestic politics of other countries and could make American diplomacy far less flexible.

As for the justification that Milei’s victory is essential to keeping China “out” of South America as the references to the Monroe Doctrine suggest, the episode of the soybean sales is a reminder that there is a basic economic complementarity between a country that is hungry for natural resources and a continent that has lots of them. And Milei himself has recognized this reality.

There might be a lesson in recognizing reality here for Washington as well.