SCOTT SIMON, HOST:
The Trump administration is throwing an economic lifeline to Argentina. Last month, President Javier Milei's party lost crucial provincial elections. In turn, Argentina's currency plunged, and stock prices plummeted. This has jeopardized reforms that Milei, an ideological ally of President Trump, has undertaken to try to balance Argentina's budget and tame its triple-digit inflation. This week, U.S. Treasury Secretary Scott Bessent formalized an agreement to loan $20 billion to Argentina, writing that the United States is, quote, "prepared, immediately, to take whatever exceptional measures are warranted to provide stability." Monica de Bolle is an economist with the Peterson Institute for International Economics who specializes in Latin America and joins us now. Thanks so much for being with us.
MONICA DE BOLLE: Thank you very much for having me.
SIMON: Just eight months ago, President Milei was at a conservative political conference here in the U.S., waving a chainsaw around on stage to symbolize his efforts to downsize Argentina's government bureaucracy. What's happened since then?
DE BOLLE: So Milei has actually been quite successful in downsizing Argentina's government, and he's been pretty successful at enacting some of the other very ambitious reforms that he had planned. Inflation did come down quite substantially. Argentina also had a very high fiscal deficit, and they managed to turn that situation around. The problem is that Argentina is a country that's quite unique because it operates with two currencies, not just one. So they have their own currency - the peso - and they also use dollars in the same way that we use dollars in the U.S.
And oftentimes, because of that system, they find themselves in a situation where they don't have enough dollars for the economy to function properly. And one of the things that did spark this dollar shortage was a corruption scandal involving Milei's sister, who is actually a very key figure in his government. So that coupled with the provincial elections in Buenos Aires, which did not go Milei's way, led to the kind of dollar outflows and hence market turmoil that we saw very recently.
SIMON: What would the $20 billion in aid the U.S. will provide do for Argentina?
DE BOLLE: So it won't really do all that much. I mean, it will resolve temporarily the kind of dollar shortages that they're currently facing, which is making markets very nervous and is having an impact on the exchange rate and on their domestic currency. So the domestic currency is weakening, and when that happens, usually inflation starts to spike again. So what the $20 billion will do is provide relief to that situation. But the problem is that longer term, it doesn't solve the issue that Argentina has because of the nature of its regime. Since it operates with two currencies and since it uses the dollar as if it were their own currency, they will probably face another dollar shortage not too far from where we are now.
And in addition to that, the lifeline that the U.S. is giving to Argentina now - so the $20 billion - the idea behind it is that it calms things down sufficiently for Milei to be able to navigate the next few weeks because come October 26, there are going to be legislative elections or congressional elections in Argentina. So there is sort of a bet behind this that, you know, by sort of staving off the turmoil, perhaps that will give Milei a better chance to garner more support in Congress in the upcoming elections, and that in turn would pave the way for the continuation of his reforms.
SIMON: There's a long history in Argentina of defaulting on its obligations. I mean, isn't the U.S. taking a big risk here?
DE BOLLE: Yes. The U.S. is definitely taking a big risk. If there is one country in the world that has surprised me in terms of the U.S. providing support to it, that country could be no other than Argentina, precisely because of that fraught history.
SIMON: There's been criticism, of course, of the decision to provide aid to Argentina, especially among Democrats. Is there an argument to be made that it's in the interest of the United States to advance $20 billion to Argentina?
DE BOLLE: There's no economic argument to be made that it is in the interest of the U.S. There is potentially a geopolitical argument to be made as it pertains to China. So China has been, over the past many years, very heavily involved in the region, very heavily involved in Argentina. This, I think, has become an issue now for the administration. So the way I see the motivation for this 20-billion lifeline is to try to get Argentina more into the zone of influence of the United States and away from the zone of influence of China.
SIMON: Monica de Bolle from the Peterson Institute for International Economics. Thanks so much for being with us.
DE BOLLE: Thank you very much for having me. Transcript provided by NPR, Copyright NPR.
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