Trump’s lifeline to Milei: A bailout hanging by a thread

Javier Milei threw himself into Donald Trump’s arms and was welcomed. Last week, the U.S. president offered Argentina an unprecedented $20 billion rescue package, in addition to an open-ended line of credit and even the possibility that the United States might purchase its debt bonds.

True to form, Trump did not hold back: he said Milei was “a truly fantastic and powerful leader” and, perhaps misinformed about the Argentine electoral calendar, even offered him his “complete and total endorsement for re-election as president.”

Milei smiled beside him with squinting eyes, holding up for the cameras a printed version of the message Trump had just posted about him on his social network Truth Social. Calm returned to the Casa Rosada, the seat of government in Argentina, after a week in which the country appeared to be sliding toward a full-blown economic and political crisis.

Trump’s support was generous, and Milei received it euphorically. Argentine Economy Minister Luis Caputo spoke of the beginning of “a new era.” Markets also celebrated after a week in which they had fled Argentina, punishing the peso and bonds. Country risk, the index measuring investor confidence, fell in just a few days from 1,500 points to 900. The dollar, which had traded above 1,500 pesos, stabilized at 1,350 by Friday’s close. With a blank check in hand, Milei was able to regain his footing after a turbulent week. But the joy may be short-lived. In international politics, there’s no such thing as a free lunch.

The aid package, one might say, comes with a catch. U.S. Treasury Secretary Scott Bessent, the formal spokesperson for the agreement, tied it — though ambiguously — to the results of the legislative elections scheduled for October 26. If Milei loses, as polls suggest, to the opposition, it could prove to be nothing more than a promise.

There is nothing Milei longs for more than winning those elections. He needs to secure deputies and senators in Congress and dreams, above all, of “driving the final nail into the coffin of Kirchnerism.” He is convinced that his success against inflation, combined with the help of “heavenly forces,” will be enough to fulfill what he considers a divine mandate. But everything changed on September 7, when the far right suffered a loss of more than a million votes in the provincial elections in Buenos Aires. Overnight, the emperor lost his clothes and was no longer invincible.

It was then that Trump extended a helping hand. It remains to be seen whether this will help Milei in the October elections. “The productive sector doesn’t see this as a bailout, because it’s thinking about how to survive. The financial sector’s perspective is quite different. Their concern was who would pay the bonds maturing in January,” says Lara Goyburu, executive director of the political consulting firm Management & Fit. The social mood has changed dramatically in just a few months in Argentina, amid an economic recession that is now impossible to ignore.

Milei has managed to bring inflation down from 25% per month last December to 1.9% in August. But the cost has been enormous: the fiscal anchor and an overvalued peso have weighed heavily on economic activity. “What punishes voters is not being able to make ends meet,” says Goyburu, “because people are focused on other things. Does the U.S. rescue help me? How does it change my daily life? Eight out of 10 people tell us they’ve had to change their spending habits, and only 13% say they can save.”

The results in Buenos Aires revealed what the electoral polls had failed to see. Milei had gradually lost support among lower-middle and working-class voters, who had been crucial to his unexpected victory in the 2023 presidential election. The phrase “I can’t make ends meet” dominates public debate.

The far-right’s cultural battles are not enough to put food on the table, and the president’s blustery style is no longer as compelling as it once was. So far, the government’s response has fallen short. There have been no ministerial changes or public self-criticism. Milei has barely reached out for “elbow-to-elbow” dialogue with the governors, all of them opponents, who overnight went from being labeled “rats” and “fiscal degenerates” to allies. The appeal came too late: there will be no accord until after the elections.

The White House took note of the political setback and made it clear that no money will flow unless Milei can guarantee that his austerity plan has not only political will but also political support. “The plan is, as long as President Milei continues with his strong economic policies, to help him — to bridge him to the election,” Bessent warned last Wednesday.

The short-term bet is that investors regain confidence in Argentina’s ability to pay. Washington is expected to step in if things collapse. “The aid managed to keep the dollar from escaping in the foreign exchange market, but there’s already a feeling on the street that this can’t be sustained and that after October 26, there will have to be changes,” says Goyburu.

The expected changes are economic — a freely floating exchange rate, to start with — but also political. That’s where the greatest uncertainties lie. Milei has so far shown an extraordinary capacity for destruction, but now he will have to build political alliances. Will he see the U.S. aid as a rescue that arrived just in time, a consequence of his mistakes? Or will he think, as he has already hinted, that it is a reward from his “friend” Trump for his crusade against “international communism”?

The fact that Argentina has needed two financial rescues in less than five months is not good news. Last April, the International Monetary Fund gave Milei $20 billion, adding to the $45 billion it had already delivered in 2018 to then-president Mauricio Macri. Now Trump has stepped in. Such unprecedented generosity is more than mere altruism. One must also look to China, a player who has remained almost invisible in the dizzying recent days in Buenos Aires.

Esteban Actis, a PhD in International Relations and professor at the National University of Rosario, says that “since Trump’s first administration, the United States has aimed to reduce the influence China has gained in South America.” “Every action has that undercurrent, especially in a context where Trump is showing that the old concept of spheres of influence is making a comeback. China is a global superpower, an asymmetric actor. And Argentina is a country in a permanent state of emergency and needs a lender of last resort. That makes it more vulnerable to having its agenda conditioned,” he explains.

Scott Bessent already said months ago that he didn’t like the $18 billion currency swap the Argentine central bank has with its Chinese counterpart. Today, $5 billion of that credit is active, which Milei will presumably have to repay with money he can obtain from Washington. But that’s not all. “One can sense that there will be other demands from Trump, such as access to critical minerals, lithium exploitation contracts, and cooperation on nuclear policy,” argues Actis.

Trump’s aid has breathed new life into Milei, but now the Argentine people will have to pay the bill.

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