Bailing out Bessent’s Buddies’ Bets on Argentina

Trump bails out hedge funds’ failed bets on Milei while his foreign aid cuts will kill millions of children

The Trump administration really hates giving foreign aid that serves any kind of humanitarian purpose. They are clearly unmoved by the fact that that they may be responsible for the preventable deaths of millions of children in impoverished countries.

Source

And to be crass, it isn’t even in the strategic interests of the United States to withdraw critically needed aid to impoverished countries. For example, we are abandoning the entire continent of Africa, with billions of people and enormous deposits of critical resources, to China.

But a $20 billion lifeline to the right-wing government of Argentina, which has no strategic value to the US and has a decades-long history of corruption, unstable politics, fiscal mismanagement and financial crises? A country that has defaulted nine times on its sovereign debt, three times since 2001? No problem!

Two weeks ago I wrote about Scott Bessent’s plan to aid Argentina, saying “This is about ideology and Trumpian fealty, not America’s interests.” I have since learned that what I said was true but incomplete, because I was insufficiently cynical. Mea culpa.

First things first: there’s no plausible scenario in which even $20 billion in U.S. loans will save Javier Milei’s failing economic strategy. The core of that strategy, as I noted previously, is what is called “exchange-rate based stabilization” — propping up the peso in an attempt to bring down inflation. But as Maurice Obstfeld, the former chief economist at the International Monetary Fund, points out in a new analysis, “Latin America is a museum of failed exchange-rate based stabilization efforts.”

I witnessed one of Argentina’s many failed attempts up close. During Argentina’s 2001 financial crisis I attended a meeting at the Casa Rosada, the Argentine equivalent of the White House, with then-president de la Rua. I was there because de la Rua was desperately trying to salvage the Convertibility Plan, the 1990s version of exchange-rate based stabilization. The plan bore a strong family resemblance to Milei’s plan both in concept and in results: Initial euphoria that eventually gave way to disaster. Neither I nor anyone else had a solution: the Convertibility Plan was unsalvageable and Argentina soon defaulted on $132 billion in sovereign debt.

Yet in 2024, despite Argentina having arguably the worst global record for sovereign debt defaults, hedge funds decided that this time was different. Milei played the room well, espousing libertarian econo-derp policies, waving a chain saw to show what he would do to government spending. While ignoring his own domestic politics, Milei deftly courted Donald Trump and Elon Musk. So by December 2024, after Trump won the presidential election, Argentine stocks and bonds had surged in value, as hedge funds and money managers put big bets on Milei.

Well, as every economist who knew the relevant history expected, it all went pear-shaped again. By early September 2025, investors began dumping Argentine assets as it became clear that Milei would suffer significant losses in upcoming congressional elections, thereby putting his entire program in danger. Despite lacking any economic, strategic or even a political rationale, Scott Bessent then announced a $20 billion lifeline to save Milei’s bife.

What I failed to point out in my previous post was that the Bessent’s money-drop was not only an attempt to bail out Argentina’s version of Elon Musk, it also bailed out his hedge fund buddies. (I must try to be more cynical….) One should read Bessent’s announcement when he promised aid to Milei. There’s no hint of an actual plan to sort out Argentina’s current mess. Former hedge funder himself, Bessent surely knows this. So what he offered instead as justification was a hefty dose of conspiracy theory:

According to Bessent, investors who are betting against the peso must have sinister political motives against Milei. That is, they can’t be pulling their money out to save their bottom line because this latest iteration of Argentine economic strategy is clearly failing, as so many have done in the past.

A new post by Matthew Klein explains the full extent of the scam: When outside players like the IMF or, now, the U.S. Treasury department lend money to the Argentine government, the money promptly flows right out again as investors — both domestic and foreign — take advantage of attempts to prop up the Argentine peso by engaging in capital flight, pulling their money out of the country. In other words, US taxpayer money is propping up the peso, allowing hedge funders to sell their Argentine assets at inflated prices, after which the peso will promptly fall again.

One of the people who urged Bessent to intervene on Milei’s behalf is Bessent’s old friend and former colleague Rob Citrone, a hedge-fund billionaire who bet big on Milei’s success and bought more Argentine assets just before Bessent’s announcement. Will Citrone take advantage of Bessent’s taxpayer-backed bridge loan of late September — because that’s all it is — to take his money and run? If he doesn’t he’s a fool, because that’s what all the smart money is doing. Argentina is currently burning through billions of dollars in reserves to defend the peso as everyone rushes for the exits.

Moreover, Klein also tells us that there has been less to Milei’s chainsaw than meets the eye. While he has created a lot of hardship by inflicting big cuts on social spending, a large chunk of the deficit reduction comes from severe cuts in public investment: “Government capex has plunged from 10% of ordinary revenues to 2%.” This is just another way of borrowing from the future, making it less likely that hedge fund bets on Argentine assets will ever pay off.

And another large chunk of Milei’s temporary savings came from reduced interest payments, which came down when investors were in denial and were briefly willing to hold short-term Argentine debt. This looked good as long as the peso was artificially strong, but the gains will evaporate as the peso falls.

So while millions of children must die to save a few billion dollars, taxpayers are on the hook for billions more to bail out Bessent’s hedge fund buddies in a predictably futile attempt to save the Elon Musk of the South.

MUSICAL CODA

More Pacifica. Not about economics, but one line translates as “I just wanna be OK / Not keep repeating the past.” But alas …