Argentina's central bank formalizes a $20 billion currency
swap agreement with the US, aiming to stabilize the country's economy.
The agreement includes significant financial backing from the Trump administration, which is a steadfast supporter of Argentine President Javier Milei, who is facing pressure ahead of October 26 midterm elections.
Ahead of the referendum, the peso has been dramatically changing, upsetting Argentinians' plans for savings and spending since they fear it will depreciate considerably more in the weeks ahead.
Scott Bessent, the US Treasury Secretary, this week announced plans to seek a separate $20 billion facility from "private banks and sovereign wealth funds" in addition to the swap line in order to bolster Argentina's struggling economy.
Milei, who was once a global symbol of libertarian politics that cut the budget, is feeling less confident going into the election since he hasn't been able to stabilize the faltering peso.
After taking office in December 2023, Milei was able to briefly curb inflation, but it has since been increasing month after month.
Trump threatened to withhold aid from Argentinians if his ally lost at the polls while he hosted Milei at the White House last week.
“If he loses, we are not going to be generous with Argentina,”
Trump said.
How will this affect Argentina's inflation and reserves?
The $20 billion currency exchange deal with the US is
anticipated to have a stabilizing effect on Argentina's affectation and foreign
reserves.
By providing access to a significant amount of US dollars, this exchange boosts Argentina's transnational reserves, which have been under pressure due to profitable imbalances and capital flight.
In terms of inflation, more stable currency exchange rates can reduce imported inflation, which arises when a decaying peso raises the cost of imported goods and inputs. Therefore, the exchange may help temper inflationary pressures linked to currency insecurity, contributing to further predictable pricing and potentially decelerating the corrosion of copping power.