Trump looks to save his ‘Mini-Me’ with a gift worth billions

2 hours ago 1

Opinion

September 25, 2025 — 11.59am

The US has stepped in as the lender of last resort in an attempt to stabilise Argentina’s imploding finances and bail out a president who is a friend and ideological ally of Donald Trump.

Unexpected defeats in local elections earlier this month – fuelled by a voter backlash against Javier Milei’s austerity regime and allegations of corruption involving his sister – triggered a share selloff of Argentina’s currency, US dollar-denominated bonds and Argentinian shares, with investors fearing Milei’s radical economic reforms could stall if the outcome of next month’s midterm congressional elections is unfavourable.

Javier Milei has built a close personal relationship with Trump and his US administration and Trump’s conservative billionaire supporters.

Milei is a libertarian and fiscal conservative who, before Elon Musk, wielded a chainsaw during his presidential campaign in 2023 to foreshadow his assault on Argentina’s bloated bureaucracy and the government’s oversized role in the economy.

He has built a close personal relationship with Trump and his US administration as well as Trump’s conservative billionaire supporters.

Milei’s approach – slashing government spending, removing state subsidies, privatising state-owned companies and repealing price controls – appealed to the fiscal conservatives in America, some of whom bet on him being successful by investing in Argentina and its dollar-denominated debt.

Those relationships have paid off, with Trump, who described Milei has a “truly fantastic and powerful leader” in a social media post on Wednesday, riding to his rescue.

US Treasury Secretary Scott Bessent announced the Treasury was negotiating a $US20 billion ($30.4 billion) swap facility with their Argentinian counterparts, that the US was ready to buy Argentina’s US dollar bonds and that it was prepared to deliver “significant” stand-by credit from its Exchange Stabilisation Fund. It was also prepared to buy secondary or primary government debt.

After the shock outcome of the local elections, the peso plunged almost 10 per cent and there were fears the country would have to abandon the exchange rate band it agreed with the International Monetary Fund in return for a $US20 billion loan earlier this year.

That would have exacerbated the flight from pesos to US dollars (wealthy Argentinians are thought to hold more of their assets in US dollars than pesos) and frightened bondholders who were already worried that, in trying to defend the peso, the government would exhaust scarce foreign currency reserves that will be needed to repay the more than $US40 billion of dollar-denominated debt that matures over the next two years.

Argentina’s president Javier Milei wielded a chainsaw during his presidential campaign in 2023 to demonstrate what he planned to do to the country’s bloated spending.

It could also reignite hyperinflation, one of Milei’s success stories. He inherited a triple-digit inflation rate from his leftist Peronist predecessors, but his austerity program and punishing interest rates (the 10-year bond yield was 17 per cent before the US announcement pushed it down to 15 per cent) has lowered the annual inflation rate to about 34 per cent. Last month, for the third month in succession, the monthly rate was below 2 per cent.

Milei has balanced the government’s budget and, while poverty levels are still high – nearly 40 per cent of the population lives below the poverty line – they were far higher when Milei gained the presidency. Abolition of rent controls has seen housing availability soar. The economy has shown modest signs of growth.

What he hasn’t been able to do, though, is end the destabilising relationship between the US dollar and the peso, a currency few Argentinians trust and which has, historically, created enormous volatility.

In moments of perceived crisis, there are massive outflows of dollar funds; the central bank doesn’t have the foreign currency reserves to slow the rush for the exits or take on short sellers, the peso crashes and a new inflationary cycle is ignited.

Milei’s platform included the abolition of Argentina’s central bank and “dollarisation”, but that would effectively hand over monetary policy to the US Federal Reserve, plunge the economy into recession and leave Argentina unable to respond to any economic or financial threat, whether domestic or external. It has a very different economy, and very different economic cycles to America’s.

Trump wants to bail out his like-minded friend and, perhaps, some of the wealthy MAGA billionaires who backed Milei’s aggressively libertarian and anti-socialist approach with their US dollars.

For Milei’s shock therapy to work, he needed to attract a flood of foreign investment to build a more sustainable economy – before he took office, the public sector accounted for about 40 per cent of GDP – and to build the reserves needed to repay Argentina’s destabilising large international debt.

The high interest rates imposed to manage the inflation rate, however, harmed both the competitiveness of its exports and its ability to increase foreign currency reserves. The stronger peso made it cheaper for Argentinians to travel and spend dollars they had hoarded offshore, but it harmed domestic investment and economic activity.

The US intervention provides temporary relief and stability, but Argentina will need far bigger changes to the structure of its economy if it is to break cycles of crises that have seen what was once one of the richest countries in the world default on its sovereign debt nine times, including three in the past decade, and made it dependent on the IMF, World Bank and now the US for regular bailouts.

There’s also no guarantee that Trump’s attempt to help his friend will be successful.

The US intervention is political and ideological. Some of what Milei has done, or would like to do, sits comfortably with the US conservatives who are now driving the Trump administration (though Milei has lowered Argentina’s trade barriers, not tripled down on protectionism).

Milei’s policies have sparked protests across the country and sent the peso plunging.

In Trump’s social media post, he lauded Milei, saying he had inherited a “total mess with horrible inflation caused by the previous Radical Left President (much like Crooked Joe Biden, the WORST President in the History of our Nation), yet he has brought stability back to Argentina’s Economy, and lifted it to a new level of Prominence and Respect.”

Trump subsequently said, as he frequently does, what should have been the quiet part out loud.

“Javier is a very good friend, fighter, and WINNER, and has my Complete and Total Endorsement for Re-election as President – he will never let you down!”

Next month’s elections will decide the fate of Milei’s government, with half the seats in a congress that was already starting to push back against Milei’s reforms now up for grabs.

Milei himself won’t face an election until 2027, but he and his reformist agenda could be rendered irrelevant and Argentina could retreat to its socialist past if his support base in congress is wiped out.

Unlike Brazil, where Trump has imposed a 50 per cent tariff on exports to the US in support of another friend, former president Jair Bolsonaro (who was jailed for 27 years for trying to organise a coup to regain office), the fate of Argentina and its economy is of little economic or strategic consequence for the US.

The US intervention, however, is clearly an attempt to boost support for Milei’s government at the mid-terms. Trump wants to bail out his like-minded friend and, perhaps, some of the wealthy MAGA billionaires who backed Milei’s aggressively libertarian and anti-socialist approach with their US dollars.

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