LongIslander
Well-known member
At least it sounds like Argentina paid it back already.
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Scott Bessent's $20 billion dollar gamble on Argentina
Betsy Ross
Well-known member
Bessent is a sharp guy.
U.S. Treasury Secretary praises Milei and defends U.S. currency swap as bilateral alignment deepens
U.S. Treasury Secretary Scott Bessent praised Argentine President Javier Milei and defended the currency swap deal between the two countries, offering a mix of political and financial backing that the Trump administration frames as part of its broader Latin America strategy.
Finance Prof
Well-known member
A few days ago the US Treasury sold Argentina about US$808 million worth of SDR's (Special Drawing Rights), the IMF’s reserve asset.
- Argentina used these SDRs to cover an IMF interest payment of roughly US$840 million due around February 1 under its existing Extended Fund Facility program.
How the mechanism works
- SDRs are not cash but a claim on freely usable currencies; to pay the IMF, a country can either use its own SDR stock or acquire SDRs from another member, then transfer them to the Fund.
- The U.S. Treasury holds a large SDR position via its Exchange Stabilization Fund and can sell SDRs to other countries in exchange for their domestic currency or dollars, subject to legal limits and IMF rules.
- In this case, Argentina obtained SDRs from the U.S. and immediately used them to meet its IMF payment, effectively turning a bilateral operation with Washington into a multilateral payment to the Fund.
Role of the currency swap and pesos
- Washington has extended Argentina a US$20 billion swap line and has also bought pesos in the market, giving Buenos Aires extra room to maneuver without burning down its own dollar reserves.
- Local reports indicate Argentina may be settling some of these SDR purchases in pesos, leveraging that swap and U.S. demand for pesos rather than paying entirely in hard currency that Argentina lacks.
- For Argentina, this is attractive because it can transform domestic‑currency resources into SDRs (and so into an IMF payment) without drawing as heavily on its limited foreign‑exchange reserves.
Why this matters for Argentina and the IMF
- Argentina is one of the IMF’s largest borrowers, with tens of billions of SDRs outstanding, so any missed payment would be destabilizing both for Argentina and for the Fund’s balance sheet.
- By staying current on interest payments through operations like this, Milei’s government maintains formal program compliance and keeps the door open for future IMF disbursements that could ease financing pressures.
- At the same time, recurring short‑term fixes underscore that Argentina still faces a heavy IMF debt burden and depends on strong political backing from the United States to manage that burden while it attempts a sharp fiscal and monetary adjustment.
But isn't all of this help basically manipulating the peso? I don't know much about how all of this works but it seems common sense if the USA wasn't bailing out Argentina and they couldn't meet their debt repayments then the peso would lose a lot of the value. Isn't this in a way @CraigM make the peso overvalued? Or @Finance Prof ?
Finance Prof
Well-known member
I can only speak for myself but I do believe the peso is way way overvalued. No one can argue that the peso wouldn't be much weaker without all of this emergency support by the US. Most investment banks in the USA also say it is overvalued. I'm not sure if the typical person on the street knows better than investment banks.
Just look at this history of this. It's all very unusual. The US government is literally buying pesos and providing USD so Argentina can defend the currency.
- Without US dollar swaps, SDR sales, and direct peso purchases, Argentina’s central bank would have far fewer tools and reserves to defend the currency, so any loss of confidence would translate faster into a weaker peso.
- Even with US support and heavy intervention, the peso has still slid and remains under pressure; that implies that in a scenario with no external backstop, the exchange rate would almost certainly have to adjust further down.
- Historically, when Argentina runs out of credible foreign support and reserves, the result has been sharp devaluations and a much wider gap between the official and market rates; the current narrow gap (official, blue, MEP all within about 3%) reflects, in part, the stabilizing effect of US‑backed policy.
Betsy Ross
Well-known member
Report: Argentina bought US$808 million from US to pay IMF
Argentina buys US$808 million in special drawing rights from the US Treasury to tackle payments at the International Monetary Fund.
www.batimes.com.ar
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