Nearly two years ago, Argentina’s newly appointed punk-haired President Javier Milei stood up on a podium in front of global elites in Davos and accused them of letting their societies drift into socialism and poverty.

He went on to argue that the “main leaders of the Western world have abandoned the model of freedom for different versions of what we call collectivism,” and that all market failures were by-products of state intervention.

This week, however, Davos had the last laugh: U.S. Treasury Secretary Scott Bessent threw Milei a $20 billion lifeline to help Argentina defend a currency that is collapsing despite nearly two years of shock therapy programs that had had supply-side economists and investors in raptures.

“Argentina faces a moment of acute illiquidity,” Bessent posted on X. “The international community — including the IMF — is unified behind Argentina and its prudent fiscal strategy, but only the United States can act swiftly. And act we will.”

The rescue act, which many have described as a country-to-country bailout, is an abrupt departure from the usual playbook of international financial diplomacy, an unusually direct intervention in a sphere normally reserved for multilateral institutions.

In a strong signal that this was the result of political will, rather than financial apparatchiks just trying to keep the system stable, the money will be directly extended by the Treasury, rather than by the Federal Reserve, in the form of a currency swap.

It stands to entangle the fate of the U.S. economy intimately with that of resource-rich Argentina, and tie the Trump administration directly to Milei’s shock therapy programs. At the same time, it reasserts U.S. influence in a region that China has increasingly penetrated through growing trade ties.

For Europe, the corollary is that access to dollar liquidity, the essential backstop of the world financial system for nearly a century, is being politicized, and may increasingly depend on how closely its policies align with those of the U.S.

“Europe should be concerned about the politicization of the swaps,” one former New York Federal Reserve official told POLITICO.

The episode “underscores the need for the rest of the world to prepare for dealing with a dollar crunch without the Fed[to turn to],” added the official, who was granted anonymity to speak freely.

Chainsaw economic massacre

Milei was explicitly elected in 2023 on the promise that he would take a chainsaw to Argentine government excesses. Positioning himself as the defender of freedom, once in office, he initiated a bold economic agenda focused on radical deregulation, welfare cuts, and liberalization. Within months, the country’s welfare bill had been slashed by nearly half, with the government balancing the books (before interest payments) for the first time since 2008.

But it was Milei’s initial move in December 2023 to devalue the official peso exchange rate by nearly 50 percent that rocked markets the most.

The hope was to better align the peso with its black market (i.e., real) rate before slowly introducing a floating exchange rate, with sliding bands.

Throughout, the International Monetary Fund, the world’s lender of last resort for countries, championed Milei’s policies, which allowed Argentina to return to capital markets earlier than expected.

“The agreed ambitious stabilization plan is centered on the establishment of a strong fiscal anchor that ends all central bank financing of the government,” the lender cooed in January 2024.

Egg on the IMF’s face?

Except things didn’t go exactly as planned. Rather than stabilize, the peso just kept depreciating, especially after Trump’s tariff announcement in April destabilized global markets. The declines threatened to make imports more expensive for ordinary Argentinians just as Milei’s disinflationary successes were beginning to become entrenched.

The road to that point evolved predictably enough. In the immediate aftermath of Milei’s great devaluation, inflation hit 25.5 percent, spiking to 276 percent by February 2025.

But, as social welfare cuts began to bite, inflation predictably turned into disinflation. By June 2024, monthly price rises had slowed to 5 percent, and by July-August, inflation had hit single digits for the first time in years. The International Monetary Fund (IMF) and independent observers were quick to credit Milei’s strict fiscal surplus, monetary tightening, and peso stabilization.

But by April, the peso’s soft float was proving increasingly challenging to defend. Trump’s “Liberation Day” tariffs, which set a baseline rate of 10 percent for all countries, had hit Argentina’s export-dependent economy hard. Capital started to flow out amid fears that a global slowdown would crush demand for its agricultural and mineral exports.

The Argentinian central bank moved to defend the peso, burning through scarce dollar reserves. Markets began to doubt that Milei’s agenda would survive, fearing that a sharp, uncontrolled depreciation would rekindle inflation just as prices were calming down.

To avert a currency crisis, Argentina turned to the IMF and was granted $20 billion through the agency’s Extended Fund Facility (EFF).

But despite an initial positive impact on the peso, the depreciation picked up speed again. From the perspective of both the IMF and the U.S., the failure of Milei’s reforms stood not just to unravel Argentina once again, but to delegitimize the ideological foundations of the free-market system he had touted as infallible if deployed correctly.

Proxy economic war with China

As confidence in Milei’s program faltered, focus shifted to whether the U.S. would make dollar support conditional on the cancellation of a pre-existing $18 billion swap line with Beijing. U.S. Special Envoy for Latin America Mauricio Claver-Carone publicly dubbed the facility “extortionate.”

In September, Bessent confirmed negotiations between the U.S. and Argentina for a direct dollar swap line, reinforcing speculation that the U.S. was trying to supplant Chinese influence in the region. The news had an immediate positive effect on the peso, breaking its fall.

After peaking at over 1,475 pesos, the dollar was back at 1,421 by late Friday in Europe, helped by news that a dollar-support package from Washington was imminent.

How long-lasting that effect will be is yet to be determined.

For now, Bessent and the IMF appear resolute that it’s just a matter of time until Milei’s policies will deliver the stability they’ve been promising. Rather than framing the U.S. swapline as a bailout, Bessent is treating the intervention as a trading play.

“This is not a bailout at all, there’s no money being transferred,” he told Fox News on Thursday. Under a swap line, two parties agree to exchange up to a certain amount of their currencies, on the understanding that it will be reversed at some time in the future.

“The ESF has never lost money, it’s not going to lose money here,” Bessent went on, arguing that the peso is “undervalued”.

He added that Milei remains a great U.S. ally who is committed to getting China out of Latin America, and said the U.S. was going “to use Argentina as an example.”

Not everyone is convinced that Milei’s policies will deliver the goods.

“They’ve done this over and over and over again,” said Steve Hanke, a professor at Johns Hopkins University and a veteran of various currency reform and stabilization packages. He argued that the package will provide “a little bit of a temporary band aid, but it won’t last very long.”