[Wen/Observer Online Wang 1] After the dust settled in Argentina's mid-term elections, U.S. President Trump made no secret of his joy, not only because his supporting ally, the ruling coalition "Freedom Progressive Party" led by Argentine President Millay, won more seats in Congress, but also because the victory brought him paper gains.
“We gave him (Millay) a lot of support. I gave him a lot of support, very strong support.” Trump told the media on “Air Force One” on October 27th, “It’s a big win, he not only won, but won a lot.”
On October 27, Trump delivered a speech to reporters on Air Force One on a trip to Japan. IC Photo
Bloomberg on Monday that the U.S. Treasury Department and related agencies carried out an unconventional operation to support the Argentine market after the local election defeat in the Milay Camp last month. It is estimated that the Trump administration has used more than $1 billion to buy pesos.
U.S. Treasury Secretary Basent, a former hedge fund manager who specializes in foreign exchange, led the operation. On October 9, the U.S. Treasury Department bypassed channels usually dominated by the Federal Reserve, purchased the Argentine peso directly and finalized a $20 billion currency swap framework agreement with the Central Bank of Argentina. It also promoted another $20 billion financing plan involving private banks in the United States.
Bloomberg pointed out that these unconventional operations occurred when the Argentine peso was at a historical low last week and bonds were sold off, which seemed very risky. Now, despite Millay's victory, many risks still exist. Millay's party remains in the minority in Argentina's national legislature, and the South American country remains heavily in debt. Argentina owes $55 billion to the International Monetary Fund (IMF).
Basent, however, showed great confidence in announcing that the United States could be ready to step-by-step withdraw from market intervention.He said on “Air Force One” with Trump on 27th, “Now I think the market will recover on its own, and the market will be confident in Millie’s policy,” “they have some large refinancing tasks next year, but the Argentine people have made a choice.”
Bessent also stressed that the financial support provided by the United States is only Argentina's "bridge to the post-election period."
However, not everyone is confident about this. The report pointed out that it remains to be seen whether Argentina can maintain the current "limited floating" exchange rate system without the support of the United States. Many analysts believe Milei will favor a floating currency once the election is over, easing pressure on the country's trading position.
Brad Setser, a senior researcher at the U.S. Committee on Foreign Relations and a former Treasury official, warned: “The risk is that Argentine policymakers may misunderstand the political victory of Milay, coupled with (per unconditional) U.S. support, will allow them to maintain a strong peso policy, but in fact Argentina does not have enough external balance sheets to support that position.”
The Associated Press also cited the analysis that despite Miley’s consolidated political momentum in the election, the notoriously agitated president still needs to draw allies to push his radical reform agenda. Because of the election only part of the seats, Miley is still unable to get a majority in both houses of Congress in terms of numbers.
The governor of Buenos Aires, Axel Kicillof, the most influential official of the “Pyronist” opposition, bluntly criticized Trump’s “open interference” in Argentine politics.
He warned that the billions of dollars of aid provided by the U.S. Treasury Department and investment banks would not bring any benefit to those ordinary Argentinians who were forced into bankruptcy by subsidy cuts and economic austerity, “I want to make it clear that neither the U.S. government nor JPMorgan are charities,” and “they come to Argentina just to make money.”
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