In a move that has ignited fierce debate on both sides of the equator, President Donald Trump’s administration has committed at least $20 billion in U.S. taxpayer funds—possibly as much as $40 billion when private sector contributions are included—to bail out Argentina’s embattled president, Javier Milei. As reported by Reason and The New York Times’ Paul Krugman, the bailout, delivered as a swap line to Argentina’s central bank, aims to shore up Milei’s government ahead of crucial legislative elections scheduled for October 26, 2025. Yet, the rationale, mechanics, and beneficiaries of this massive intervention have come under intense scrutiny, raising questions about the true motives behind the rescue and its likely impact on both nations.
At a press conference earlier this week, President Trump stood beside President Milei and made no secret of the conditional nature of the support. "We don't have to do it. It's not going to make a big difference for our country," Trump told reporters, adding, "Our approvals are somewhat subject to who wins the election." Treasury Secretary Scott Bessent echoed this sentiment, stating, "There's a midterm election coming up. We think he's going to do well and then continue his reform agenda." According to Reason, Bessent also revealed plans for a complementary $20 billion facility, potentially sourced from private banks and sovereign funds, describing it as "a private-sector solution" and claiming, "many banks are interested in it and many sovereign funds have expressed interest."
But why Argentina, and why now? As Paul Krugman points out in his October 17 column, the justification for such a large U.S. commitment is shaky at best. Argentina, he notes, accounts for less than 0.5 percent of U.S. exports—a stark contrast to Mexico’s 10 percent share in 1994 when the U.S. intervened to stabilize its neighbor’s economy. Bessent described Argentina as a "systemically important ally," a claim Krugman dubs as "news to many." The editorial board of the Financial Times was similarly skeptical, underscoring the lack of a compelling U.S. national interest in Argentina’s financial stability.
Critics, including Krugman, argue that the true motivation behind the bailout may be more about political and personal alliances than American interests. Milei, a self-styled right-wing populist, has become a favorite among U.S. conservatives, often brandishing a chainsaw at rallies to symbolize his intent to slash government spending. Trump and his allies appear keen to see Milei succeed, whatever the cost. Furthermore, as Krugman notes, some U.S. hedge-fund billionaires—personally close to Bessent—have heavily invested in Argentine bonds. The bailout, he suggests, could be a way for these investors to recoup their bets before a possible economic collapse.
Since taking office in December 2023, Milei has enacted sweeping austerity measures, slashing billions from government spending, freezing public works, and cutting federal funding to provinces. According to Reason’s César Báez, these policies led to Argentina’s first primary surplus in over a decade and its first full-year surplus in 123 years. However, the social cost has been staggering: consumption plummeted, poverty soared above 50 percent before easing in recent months, and public services like health and education suffered deep cuts. Retirees saw their benefits shrink as inflation eroded payments, and stricter rules limited access to pensions.
The political backlash has been swift and severe. In Buenos Aires province—home to nearly 40 percent of Argentina’s voters—Milei’s coalition suffered a significant defeat in early October’s legislative contests. In response, Milei proposed a 2026 budget that expands spending in areas he once vowed to shrink, a move widely seen as an attempt to blunt criticism and court centrist lawmakers who are skeptical of his radical reforms but wary of Peronist populism. As Báez notes, "By conceding targeted increases, he hopes to blunt those challenges while courting centrists who dislike Peronist populism but remain wary of his radical cures." Without a congressional majority, Milei has relied on vetoes to block deficit-boosting bills, but the upcoming elections will determine whether he can grow his foothold in Congress or remain boxed in.
Yet, the economic data tell a grim story. Krugman points out that while Milei has managed to reduce inflation by keeping the peso overvalued against the dollar, this strategy is a "time-tested futile" one. Historically, such approaches lead to initial euphoria, followed by rising unemployment, capital flight, and ultimately, a currency collapse. Since the U.S. Treasury’s intervention was announced, Argentina’s overnight collateralized peso repo rate—a key indicator akin to the U.S. federal funds rate—has skyrocketed from 80 percent to a staggering 160 percent. Krugman warns, "An interest rate this high is catastrophic to any economic plan and any government."
This isn’t the first time the U.S. has lent a helping hand to a troubled economy, but the circumstances are markedly different. In 1995, the Clinton administration’s intervention in Mexico was underpinned by deep economic integration and geographic proximity. The Mexican government at the time enacted realistic policies and devalued the peso before receiving aid, ultimately repaying the loan ahead of schedule. In contrast, Argentina is geographically distant, economically marginal to the U.S., and led by a government still gripped by what Krugman calls "magical thinking" about the power of right-wing economics and foreign bailouts.
Making matters worse, Trump’s explicit linkage of U.S. support to Milei’s electoral fortunes has backfired. By publicly stating that financial assistance is contingent on Milei’s victory, Trump has galvanized the opposition and fueled capital flight, exacerbating Argentina’s financial instability. Krugman observes, "It now appears likely that Milei will suffer an even bigger loss in this month’s elections than he would have without Trump’s 'help.'"
The bailout’s critics argue that it is unlikely to succeed—politically or economically—for Milei or Argentina. The real winners, they contend, are the hedge funds and billionaire investors who can now use the artificially propped-up peso to extricate their money before a potential collapse. As Krugman bluntly puts it, "American First really means Billionaire Buddies First."
Supporters of Milei, however, argue that his reforms, while painful, are necessary to undo decades of Peronist mismanagement. They see the bailout and the accompanying spending increases as pragmatic steps to stabilize the peso, buy time, and allow Milei to see his reforms through. The upcoming legislative elections will be a critical test of whether Argentines are willing to endure short-term hardship for the promise of long-term fiscal health.
As the October 26 elections loom, both Argentina and the U.S. are watching closely. The outcome will not only determine the fate of Milei’s ambitious agenda but also serve as a referendum on the wisdom—and motivations—behind the Trump administration’s extraordinary intervention in a faraway crisis. For now, the only certainty is that the stakes, both political and financial, could hardly be higher.
