International consultants describe the US bailout as a “band-aid”

Both in the local and international markets, of course, with different levels of anxiety, they are hungry for news about the negotiations of the economic team and the US Treasury and the International Monetary Fund (IMF). But in addition to local suspicions and speculation, abroad not only are the decibels lowered for the rescue, but doubts are redoubling about the sustainability of the economic program and, above all, the exchange rate strategy.

“The US Secretary of the Treasury, Scott Bessentannounced a loan of US$20,000 million to Argentina to help stem weeks of significant sell-offs in Argentine assets and upward pressure on the peso. Although the measure reinforces confidence and guarantees the payment of bonds until 2026, it does not largely address Argentina’s underlying problems,” they point out from Oxford. For this reason, the economists of the British consulting firm emphasized that the rescue was like a “band-aid”, not a cure (“US support for Argentina is a band-aid not a cure“).

In their latest report on Argentina and US support, they affirm that the economic decisions of the government (of Milei) after the October midterm elections remain uncertain, but they warn that Addressing the 20% peso overvaluation is crucial for the sustainable accumulation of reserves. “However, this would occur at the expense of social support for President Javier Milei, since inflation would increase,” they consider.

Regarding the aid package, they say that, after a sharp liquidation of Argentine assets and the increasing pressure on the peso in recent weeks, the Trump administration will grant a loan of US$20,000 million to the Argentine government through a swap line and a stand-by credit, “but its conditions are still unclear.” “Although the measure offers a boost to market confidence and guarantees the payment of bonds in 2026, the loan is far from solving Argentina’s problems,” they openly state.

In this regard, OE believes that Argentina’s problem It is not the lack of dollars, but the absence of a sustainable and long-term way to generate them. “The government’s strategy to secure dollars has been based on the accumulation of more debt through international organizations, repos and, now, the US government, which is unsustainable,” they warn. Therefore, they explain that, to create a constant flow of dollars, “the Government needs to address the 20% overvaluation of the peso, a measure that Milei has not been willing to take due to the political cost of higher inflation.” “However, his current peso control policy has also been ineffective lately, as support for the opposition has been increasing. According to OE, Milei’s policies have not effectively addressed the overvaluation of the peso.

Pantheon Macroeconomics: political risks and market fragility

For their part, the economists of P.M point out that, since mid-September, the stock market index S&P Merval has reflected the growing economic and political instability of Argentina, remaining well below its previous highs and marked by strong volatility, reaching in recent days a 29% below its January high. They explain that the market has not recovered from the 14% drop at the end of August, caused by the defeat of President Milei’s coalition in Buenos Airesand the intra-day rebounds have been short-lived so the index remains trapped in a wide range.

They consider that the losses close to 50% in dollarsamplified by the weakness of the Argentine peso, reflect the current confidence crisis amid slowing disinflation, growing political noise and high risk premiums. For this reason, they point out that, “political setbacks have called into question the government’s reformist drive, while the accusations of corruption in President Milei’s circle “They have deepened the distrust.”

In this way, the fall of the peso to historical lows close to $1,435 per dollar has intensified pressure on the Central Bank and has raised bond spreads to more than 1,200 basis points. Furthermore, they add, as “overall inflation still exceeds 35% and growth expectations are declining, with the risk of a recession, investors remain on the defensive ahead of the October midterm elections, despite reaffirmed support from the US and the IMF.”

They also consider not only the political noise but also the parliamentary weakness: President Milei’s coalition lost the elections in the province of Buenos Aires and tensions increased due to the veto of tax bills. “The rebound at the end of September probably reflects tactical relief rather than a structural change. While exchange rate margins may have improved, volatility will remain high,” they say from PM.

The British consultancy highlights that the markets continue quoting the exchange rate above the limit of the exchange band by the end of the year, and Inflation, fiscal risk and political fragility affect confidence. Under a context where parallel interest rates have diverged and sovereign debt spreads remain high, and on top of that the October midterm elections are approaching, they believe that the peso will continue to be vulnerable. “US support and currency flows offer respite, but the Credibility and political stability are the fundamental pillars“, they maintain.