After the US Treasury announcement that you could use its historic stabilization fund to contain the volatility of the dollar, the market is excited about the possibility of a swap line with the Fed that would reinforce reserves without going through Congress.
Washington’s support to Argentina added a new chapter with the statements of the US Treasury Secretary, Scott Besent, who said he is willing to use the Exchange Stabilization Fund (ESF)a powerful crisis fund created in 1934, to help lower the volatility of the dollar. The news promoted Argentine assets up and trimmed the pressure on the dollar, PEro market attention is set in the next steps.
The spher has assets for US $219,500 million, Although its immediate “fire power” is lower: according to analyst Brad Setser, the available amount is around US 30,000 million, enough to contain a exchange shock in a country like Argentina, which is not considered systemic for the global financial system.
Besent clarified that any intervention decision would be taken after his meeting with President Javier Milei and the American president Donald Trump on Tuesday in New York. The gesture was read as a high -caliber political support: “The US support will give a short -term impulse to the weight of the government in the mid -term elections ”Said Martin Muhleisen, former IMF strategy chief.
Will there be swap line with the Fed?
While Besent mentioned that a SWAP line of the Central Bank with the Federal Reserve It is one of the tools that could be considered, He clarified that this decision does not depend on the treasure but on the Fed. Until now, Fed SWAP lines have been designed to prevent global contagion and protect the US financial system, rather than to solve exchange crises from emerging countries individually.
A Fed spokesman declined to comment on the possibility of including Argentina in its swap networkwhich currently covers central banks of advanced economies and some strategic partners. It is also worth emphasizing, that an eventual swap would escape from Javier Milei’s need to pass through Congress. And in the case of an ESF loan, being something that would be the first time that a foreign country has been granted since 2002, it is not known whether or not to go through Congress. It would be different if the loan outside the International Monetary Fund (IMF) where the Government must have the approval of the Congress, due to the “Guzmán Law” sanctioned in 2021.
Some experts warned that Washington’s unconditional support could feed capital exit instead of curbing the crisis. “It can be just a way to finance the escape for a while,” said Mark Sobel, former Treasury official and IMF, who recalled that investors continue to see Argentina as a country of recurring risk: “They have been default and hyperinflation for more than one hundred years:
Scott Besent Treasure USA
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What is Exchange Stabilization Fund (ESF)
He Exchange Stabilization Fund (ESF) It is a special US Treasury fund created in 1934, in full depression, to stabilize the value of the dollar after its gold support was reduced. Has the power to buy and sell currenciesgrant loans or loans to foreign governments and use Special Giro Rights (DEG) of the IMF.
Although it is not used regularly, the spH was key in several crises:
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1994-1995: He guaranteed USD 20,000 million on loans to Mexico during the “tequilazo” crisis, backed with future revenues from Pemex.
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1998: It was used to help Brazil in the midst of their exchange crisis.
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2002: He granted a bridge loan of USD 1.4 billion to Uruguay, then repaid with FMI funds and the World Bank.
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2008: During the global financial crisis, USD 50,000 million were allocated to guarantee monetary market funds.
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2020: USD 10,000 million contributed to support Fed liquidity facilities during the Covid-19 pandemic.
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2023: He compromised USD 25,000 million for the Fed emergency liquidity program after the bankruptcy of Silicon Valley Bank.
The last direct intervention in foreign exchange It occurred in 2011in coordination with the G7, to stop the appreciation of the Yen after the earthquake in Japan.
Despite these two alternatives that are considered, the market immediate Country risk collapsed to levels prior to elections in the province of Buenos Aires.
Source: Ambito
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