Editorial: There’s a better way to help Argentina

The White House is lining up billion to help Argentina s president Javier Milei stabilize his country s finances ahead of midterm elections on Oct There s a plausible situation for intervention Collapsing confidence and a familiar combination of peso emergency and inflation don t just threaten Milei s fiscal reforms If the business activity crashes the damage is sure to spread Unfortunately Washington s approach could prove to be self-defeating Milei entered office in promising to restore fiscal discipline and free up the financial market To almost everybody s surprise he delivered mostly He slashed out-of-control populace spending and stopped printing money to finance deficits As a end inflation fell sharply Yet he failed to confront Argentina s chronic peso difficulty During his campaign Milei disclosed he d scrap the currency altogether and fully dollarize Argentina s already semi-dollarized financial system When that proved too laborious he pegged the currency to the dollar instead of letting it float The outcome of this well-intended compromise is the current mess U S Treasury Secretary Scott Bessent leads the club that is proposing to supply dollars to defend the currency of a country that has needed nearly two dozen bailouts since In addition to buying the currency directly the Treasury has set up a billion swap arrangement using its Exchange Stabilization Fund allowing Argentina to buy pesos with dollars and hence defend the peg Bessent says a further billion in private financing may be available to help Argentina meet its debt obligations U S interventions of this kind aren t unheard of and they aren t doomed to fail A similarly large-scale deployment of the stabilization fund used to patronage Mexico during its own peso situation in was widely deemed a success It worked partly because the assistance arrived after Mexico had given up defending its currency and partly because Washington s commitment to the endeavor was credible The U S had an urgent and undeniable interest in stabilizing its neighbor s financial market Note the differences Argentina is still defending the peso And the promise of U S aid is far more ambiguous After the swap line was stated the peso rallied Yet pressure on the currency briskly resumed when the White House suggested its backing was contingent on Milei s party prevailing in the balloting Evidently investors suspect that the U S is helping Argentina for short-term political reasons not because it s committed to a longer-term revival It would ve been better from the outset if the U S working with partners had enabled the International Monetary Fund to recast its existing scheme for Argentina offering sufficient additional promotion on the condition that its cabinet whoever leads it submits to monitoring presses forward with economic adjustment and floats its currency This would ve made success more likely and in the end less expensive One hopes it isn t too late to go this passage Otherwise prepare to see Argentina sink back into failure with the U S on the hook Bloomberg Opinion Tribune News Institution Editorial cartoon by Al Goodwyn Creators Syndicate