Argentina's central bank signs $20 billion currency swap deal with US

Argentina's central bank said on Monday it signed a $20 billion exchange-rate stabilisation agreement with the US Treasury Department, six days ahead of a key midterm election.

The central bank's statement said the agreement sets forth terms for bilateral currency swap operations between the US and Argentina, but it provided no technical details.

The central bank, the BCRA, said: "Such operations will allow the BCRA to expand its set of monetary and exchange rate policy instruments, including the liquidity of its international reserves."

The Argentine peso closed at a record low, down 1.7 per cent on the day to end at 1,475 per dollar. 

The BCRA said the pact was part of a comprehensive strategy to enhance its ability to respond to foreign exchange and capital markets volatility.

The US Treasury did not respond to a request for details on the new swap line and has not issued its own statement about the arrangement.

US Treasury Secretary Scott Bessent said last week the arrangement with banks and investment funds would be backed by International Monetary Fund Special Drawing Rights held in the Treasury's Exchange Stabilization Fund that will be converted to dollars.

Bessent has said the US would not put additional conditions on Argentina beyond President Javier Milei's government continuing to pursue its fiscal austerity and economic reform programs to foster more private-sector growth.

Bessent has announced several US purchases of pesos in recent weeks, but has declined to disclose details.

Currency traders said that since the Treasury first purchased pesos on October 9, sales of dollars into the peso market have reached hundreds of billions of dollars, though the source of the selling has not been disclosed.

Brad Setser, a former US Treasury official who is now a senior fellow with the Council on Foreign Relations, said there was a "preponderance of evidence is that the peso is significantly over-valued," an assessment shared with other analysts but which Bessent rejects.

Setser said these indicators include strong import and outbound tourism growth, Argentines purchasing cheaper goods in neighboring countries and the central bank's failure to meet the IMF's reserve accumulation targets.

"It does seem to me that the Treasury is taking an unusually large risk of losing money" in supporting the peso, he added.

On Monday, the Wall Street Journal reported that a group of US banks, including JPMorgan Chase, Bank of America and Goldman Sachs, was hesitant to lend $20 billion to Argentina without guarantees or collateral. The banks did not immediately respond to Reuters requests for comment.

ELECTION THIS WEEKEND

Argentine Economy Minister Luis Caputo said last week he hoped the swap deal framework would be finalized before the October 26 midterm parliamentary vote, in which Milei's party will seek to grow its minority presence in the legislature.

Milei, who has sought to solve Argentina's economic woes through fiscal spending cuts and dramatically shrinking the size of government, has been handed a string of recent political defeats.

US President Donald Trump said last week the US would not "waste our time" with Argentina if Milei's party loses in the midterm vote. The comment briefly shocked local markets until Bessent clarified that continued US support depended on "good policies," not necessarily the vote result.

A positive result for Milei's party would help block any policy repeal efforts, he added.