Quelle Surprise: Three Days After Milei Signs Another Unpayable IMF Bailout, US Treasury Secretary Pays Argentina a Call

The US has one clear goal in sight: to get Argentina to sever its ties with China, particularly by terminating a long-standing currency swap agreement. 

As we warned just over a month ago, the wheels are beginning to fall off the Mileis’ faux libertarian clown bus. But if anything, the freakshow is getting weirder.

Last Friday (11/04), as the country experienced its third general strike since Javier Milei’s government took office 16 months ago, Milei gave a televised address to the nation. Flanked by his senior cabinet members, Milei told the Argentine people that his government had finally lifted the currency controls that had plagued the economy since 2011 so that people can once again buy dollars unhindered.

Economic stability, he said, had finally returned to the country — all thanks to another, ahem, IMF bailout, Argentina’s 23rd since becoming a member of the fund in 1956.

Fake Libertarians Celebrate While IMF Staffers Refuse to Sign Off

To my knowledge, this is the first time that an Argentinean government, or indeed any national government, has responded to an IMF bailout with jubilant celebrations. Normally, an IMF bailout is the last resort for a government that has run out of options, not the beginning of a new golden age, as the Milei government is trying to present it.

The fact that the Milei government in is filled with pseudo-libertarians to whom the IMF should be anathema makes it all the more surreal. Argentina’s Finance Minister Luis Caputo, a serial debtor and former JP Morgan Chase banker who already burdened Argentina with a $57 billion IMF loan in 2018, even thanked his wife and children for their support during the negotiations, as if he were winning a lifetime award.

At the same time, some senior IMF staffers were so opposed to the deal that they were willing to walk away from their jobs, according to La Política Online (LPO):

The opposition that this situation generated among the staff of the organisation, led to the firing of several management cadres. First it was the Chilean Rodrigo Valdés, who as director of the Western Hemisphere was the persion who naturally had to lead the Argentine case. Valdés is a consistent critic of Argentina’s hyper-indebtedness favoured by the Fund.

And now it has emerged that Turkey’s Ceyla Pazarbasiogluel, the director of the IMF’s Strategy, Policy and Review Department (SPR), refused to sign off on the new loan. In her place, two minor officials intervened to trigger the loan. “Totally outside the manual,” the Fund itself acknowledged to LPO.

The SPR is known as the “alpha male” of the IMF’s departments, or the IMF’s “politburo” — metaphors that illustrate its enormous power behind the scenes, since no major report can be published without its approval, as a former member of that committee revealed in an article in the Financial Times.

The IMF’s original $57 billion bailout of Argentina in 2018 was already the biggest in the Fund’s 81-year history. At the time, many warned that Argentina would end up bailing on the bailout. As my former WOLF STREET colleague Wolf Richter wrote at the time, “No one should ever lend dollars to Argentina, not even the IMF. This always ends the same way: in a default.”

And so it proved. In recent weeks, a default was looking more and more likely. The Central Bank of the Argentina Republic (BCRA) had burnt through more than $40 billion of the country’s foreign exchange reserves in a futile attempt to keep the peso artificially high, and thus inflation (in pesos) artificially low. In the process, it had not only run out of reserves, it had taken them into negative territory, and was now auctioning off other state assets to contain the run on the dollar.

Now, even senior staffers at the IMF are warning about the risks of doubling down on the Fund’s exposure to Argentina’s debt. Buried within the text of the new agreement is an admission by the Fund itself that Argentina’s even more bloated debt load is practically unpayable. From LPO:

What is striking is that even without Pazarbasiogluel’s signature on the contract, the SPR warns in the fine print of the agreement about the risk of the IMF’s larger than ever exposure to Argentina.

The Fund’s maximum credit to Argentina, assuming disbursements are made as scheduled, is projected to reach 1,352% of the country’s quota in 2026. This would be the Fund’s largest exposure in absolute terms in its history.

Argentina is receiving loans not just from the IMF but also the World Bank and the Inter-American Bank, all of which will have their own sets of terms and conditions. The IMF will be providing just under half of the total $42 billion bailout ($20 billion) while the World Bank will chip in an extra $12 billion, and the IAB, $10 billion. The latest loan package increases Argentina’s total debt to multilateral institutions to over $80 billion.

Needless to say, attached to the IMF bailout are all the usual structural adjustment reforms (pensions reform, labour reform, fast-tracked privatisations, tax reforms and currency devaluation…) that the IMF itself admitted almost a decade ago don’t work yet continues to apply. Javier Milei, who before entering politics described the IMF as a “perverse institution”, will happily abide.

Loosening Currency Controls 

“Today we are breaking the cycle of disillusionment and disenchantment and are beginning to move forward for the first time,” Milei said. “We have eliminated the exchange rate controls on the Argentine economy for good.”

Even in the most generous of readings, this is only partially true. Some currency controls not only remain in place but appear to have got even tighter. A statement issued by the central bank on Friday suggested that the loosening of currency controls will not apply to those who use cash. In order to be able purchase foreign currency banknotes, the central bank said that “customers’ use of local currency cash must not exceed the equivalent of USD 100 (one hundred US dollars) in the calendar month for all entities and for all the indicated purposes.”

In other words, the currency exchange controls not only remain in place but will actually intensify for anyone using cash — before the latest IMF bailout, Argentineans could exchange up to 200 dollars’ worth of pesos in cash per month. Needless to say, $100 does not get you far in today’s Argentina, which thanks to Milei’s policies has became the most expensive country in dollar terms in Latin America.

Government representatives have since countered that citizens and businesses will be able to buy unlimited sums of dollars and send them overseas — but only using online banking. This is great news, of course, for well-heeled corporations and investors, including those who have made huge returns by betting on the roughly 30 percentage-point interest rate differential between Argentina and the US — all made possible by the Milei government’s unsustainable policy to keep the peso artificially high against the dollar.

Just as happened in 2018, it looks like an IMF loan is about to be used to finance capital flight out of the country. In 2018, the then-Macri government’s prior lifting of capital controls allowed the financial speculators who had invested in Argentine bonds to get their money out of the country before the next default.

It’s a different story for the legions of Argentineans who don’t use online banking, preferring instead to have their savings, mainly in dollars, outside the banking system. This is largely because of their well-earned distrust of the banking system. It was, after all, only a generation ago that President Fernando De la Rúa imposed brutal restrictions on the withdrawal of money from banks, which would come to be known as “el corralito”. As inflation surged following repeated devaluations, many Argentines lost their life savings.

Today, more and more people who do have bank accounts are having their bank accounts frozen due to failure to pay all their taxes on time or comply with the ever more onerous tax obligations. As we’ve reported previously, Milei’s government, despite its libertarian pretensions, has massively increased the tax burden during its 16 months in office, especially for lower and middle classes.

Another way Argentineans will be instantly impacted by the bailout deal is through devaluation of the Argentine peso, and the resulting inflation it will fuel. One of the conditions of the IMF bailout is that the Milei government and central bank allow the Argentine peso to trade within a so-called currency band ranging from 1,000 to 1,400 pesos per dollar. On its first day of trading within the band, the official exchange rate fell 12%. It will probably fall a lot further.

Just two months ago, Milei said there was no way his government would devalue the peso.

De ninguna manera https://t.co/3pgcrSHZFB pic.twitter.com/xfESYCiF5W

— Arrepentidos de Milei (@ArrepentidosLLA) April 14, 2025

The upshot of all this is that Argentina is likely to see a sharp resurgence in inflationary forces in the months to come. The Milei government’s most touted achievement — its supposed taming of inflation, achieved through the brutal application of austerity — was totally unsustainable. Inflation was already beginning to surge back in recent months. The country continues to boast the highest official inflation rate of any country not at war, and Milei is now talking about bringing price inflation to zero by mid-2026. Only his most committed followers will believe him.

Meanwhile, the austerity will intensify. The only way the government has of bringing inflation under control is to kill the economy, and even that’s not working.

US Secretary of State Pays a Call

On Monday, just three days after the IMF mission left Argentina, the US Treasury Secretary Scott Bessent arrived. It is unusual for a US treasury secretary to visit third countries, especially those with smallish economies, notes the Argentinean sociologist Atilio Boron in an essay on the possible reasons for Bessent’s visit. Besides participating in multilateral fora such as meetings of the G7, the G20, and the IMF, treasury secretaries rarely travel in an official capacity to countries that are not of decisive importance to the functioning of the global economy.

Which is why the visit of Donald Trump’s Treasury Secretary Scott Bessent to Argentina yesterday (14/04) raised a few eyebrows, especially given the turbulent global economic and geopolitical backdrop.

As trade officials in Washington awaited the arrival of Maros Sefcovic, the trade chief of the European Union, one of the US’ biggest trade partners with nearly $1 trillion in two-way trade last year, Bessent was sitting down to do business with Javier Milei, the president of a country that accounts for a mere $16.3 billion in total annual trade with the US.

It’s not hard to see why. The obvious answer, says Boron, is China:

In keeping with Trump’s full frontal attack against Beijing — once a mere economic competitor and now an apex enemy, as characterized by numerous official US documents – Bessent will surely repeat the three magic words of the White House, uttered by both Biden and Trump alike: “keep China out”.

“A Very Interesting Partner”

As readers may recall, Milei was initially hostile to the mere notion of doing business with the “murderous” regime in Beijing. But he gradually warmed to the idea as he realised how much Argentina’s economy and finances depended upon China, its second largest trade partner. By October last year, as dollars were drying up, Milei even began singing Beijing’s praises as efforts begun to relaunch Argentina’s strategic economic agreement with China.

“China is a very interesting trading partner. They do not make demands, the only thing they ask is that they not be bothered.”

In others words, general non-interference — the diametric opposite to how the US has traditionally engaged with its Latin American neighbours. Milei was also seemingly impressed by Chinese efficiency, saying: “We had a meeting with the ambassador (Wang Wei) in June, the next day they unlocked the swap,” referring to the rescheduling, last June, of the payments corresponding to an activated tranche of the currency swap that both nations are keen to maintain.

But the US wants to gut that bilateral swap, and is apparently willing to use the IMF bailout as a bargaining chip. In a recent trip to Argentina, the US State Department’s head of Latin America, Mauricio Claver-Carone, cited the ending of Argentina’s swap line with China as a key condition for an explicit endorsement of the Trump administration for the IMP bailout.

“We want to make sure that no agreement with the Monetary Fund ends up prolonging that line of credit or that swap they have with China,” said Claver-Carone. “If we do that, we are shooting ourselves in the foot.”

Washington sees the swap line as an “extortion mechanism,” which is ironic given how Washington uses the IMF in exactly that way.

In 2020, Claver-Carone, in the same role for the first Trump Administration as he has today, openly admitted that the US’s decision to grant the $57 billion loan requested by Mauricio Macri’s government in 2018 was largely based on geopolitical considerations. That loan was granted despite the fact that the funds were clearly going to be used for electoral purposes. From Infobae:

Donald Trump considered Mauricio Macri a key player on the geopolitical chessboard of Latin America and used all his institutional power to support his Cambiemos government, which was in a bind due to recessionary conditions that could open the door to a Peronist victory in the approaching elections.

Trump intended to block a return of the Justicialist Party to the Casa Rosada, since such a government would complicate his plans to end Nicolás Maduro’s regime in Venezuela. For the White House, a victory for Cristina Fernández… could bring back a populist axis — Argentina, Venezuela and Cuba — and affect US interests in the region.

In this respect, the president of the United States not only supported Macri in public, but also secretly used all his global influence to get the International Monetary Fund (IMF) to break all its financial limits and grant Argentina a historic credit of more than 55,000 million dollars.

In an interview with Bloomberg yesterday, Bessent praised Milei for working to bring down barriers towards reciprocal trade with the United States. He also admitted that the US is seeking to prevent Latin American countries from giving up their mining rights to China in return for aid. The unsaid part: those rights would be much better used in the hands of US, Canadian, European and Australian companies.

“China has signed a number of these rapacious deals marked as aid, where … they’ve taken mineral rights. They’ve added huge amounts of debt onto these countries balance sheets,” he said. “They’re guaranteeing that future generations are going to be poor and without resources. And we don’t want that to happen any more than already has in Latin America.”

This is all part of the collective West’s China debt trap lie that won’t die, as Conor documented in 2023:

While Beijing certainly seeks influence in countries where it lends, it also usually builds infrastructure. And while those roads, train tracks, ports and more are also usually beneficial to Chinese operations, their construction also helps the host country. It’s also way more than the West offers in terms of infrastructure.

There are, of course, other possible motives for Bessent’s presence. Perhaps, writes Boron, he visited Argentina to carry out an on-the-ground inspection of the possibility of dollarizing the Argentine economy, just at a time when the dollar is losing ground in the global economy:

Dollarizing was one of Milei’s campaign pledges. Isn’t it possible that Trump, in great need of allies in this part of the world, has decided to bind Argentina to the US by taking advantage of the fact that its current government, imbued with a deep colonial mindset, would be more than happy to put an end to the peso – described by Milei as excrement — and replace it with the dollar? The USD already legally prevails as legal tender in Ecuador, El Salvador and Panama. Adding Argentina, the region’s third-largest economy, to that list would be a formidable victory for Washington. And it could be done at negligible cost to the empire.

A third possible motive flagged by Boron is that the US turns Argentina into a full-fledged military outpost. Given the country’s geostrategic position, on the doorsteps of the Antarctic and sharing the “Triple Frontier” with Brazil and Paraguay, a key border in South America in terms of population, movement of people and international relations, this is a distinct possibility:

Is it outlandish to imagine that Bessent has come to demand, in exchange for the Argentine bailout, authorisation to install several US military bases in different parts of the country – especially in Patagonia and Tierra del Fuego – in order to control access to Antarctica and the bioceanic passage in the event of a conflict in the Panama Canal zone, without having to negotiate anything with its devalued NATO partners stationed in the large British base built in our Malvinas (Falklands) Islands?

The Milei government will, of course, happily oblige with any US demands. In an interview yesterday, Milei described Bessent’s visit as “historic” for Argentina, adding that his government is in “perfect synch” with Trump’s. Put simply, the Milei government will bend over backwards to give away Argentina’s riches.

This was on full display in a speech given by Damián Reidel, the head of Milei’s Council of Advisors, at the Latam Forum in March. Speaking to captains of the US oil industry, tech company CEOs, billionaire investors and public officials, Reidel explained how the natural resources of southern Argentina would soon be theirs for the taking (emphasis my own):

“We have large tracts of land with access to energy and water, cold climates, which is the icing on the cake for cooling AI systems; and in addition, we are in an area without armed conflicts, without tsunamis, or earthquakes. There aren’t many places on Earth with those qualities. Obviously, the problem is that these areas are populated by Argentines. So this is one of the things that we’ve fixed. We are stabilizing the macro, we are giving them the legal framework to explain to them that we are open for business this time.”

Meanwhile, for Washington the IMF continues to serve as a handy tool for pursuing its geopolitical goals, not only in its own “backyard” but far beyond it. As more and more of the Global South’s stagnating and heavily indebted countries succumb to the whipsawing effects of Trump’s global trade war and enter into default, the use of that tool could be about to increase significantly.

The question is: how will China respond?

Beijing’s refusal to let a BlackRock-led consortium buy out a Hong Kong-based holding’s ownership of two ports on the Panama Canal has shown that it is willing to assert its power as Washington attempts to roll back its influence on the American continent. China is still an important contributor to the IMF’s coffers even as it has expanded its own loan agreements with Global South countries. But will that collaboration continue if Washington intensifies its weaponisation of the Fund against Beijing’s alliances with the Global South?

There is one other participant in this unfolding drama that is getting much less attention: the Argentine people. As Boron notes, it would be a serious mistake to think that the current popular mood of relative passivity will last indefinitely:

It is a fact that social mobilization has grown in recent months and that, as all the polls show, frustration is spreading even among those who voted for Milei (NC: the Mileis’ LIBRA crypto scam, targeted primarily at Milei’s most fervent supporters, was almost certainly a turning point in this regard)… A careful reading of this country’s past teaches us that the popular mood can change in the blink of an eye in the face of events that, in another historical context, would be unimportant.