It is famed for hard-nosed bargaining with crisis-hit countries, so why did the International Monetary Fund throw a $20bn lifeline to the serial defaulter Argentina – despite alarm on its board? The answer is that the country’s rightwing leader, Javier Milei, is Donald Trump’s “favourite president”. Amid unease over handing a third of the IMF’s global lending to its largest debtor, the deal passed with $12bn upfront. The IMF has long been intellectually compromised – promoting stability while enforcing neoliberal orthodoxy. Under Mr Trump, it is ethically compromised too.
Mr Milei’s bailout marks the second Trump-era rescue for Argentina. In 2018, the fund handed Buenos Aires a record $57bn – but cut it off when its then president, Mauricio Macri, a Trump family friend, was not re-elected. That deal now looks nakedly political. With the US holding an effective board veto, the fund’s independence was always fragile. It’s now completely subordinated. A US takeover of the IMF threatens deeper instability than any Argentinian default.
Mr Milei shouldn’t have got the loan on these terms. Apart from Argentina’s atrocious record of repayment, its president is operating by emergency decree, without congressional backing. Since winning power last year, Mr Milei has used authoritarian tactics – suppressing protest rights and attacking press freedoms – to impose shock therapy. The plan has been to engineer austerity, spike inflation and deepen poverty, then claim victory when falling prices lower poverty metrics.
The hard part starts now. Argentina is a classic “stop-go” commodity exporter. It builds up dollars by exporting its produce during a short harvest season, before exports slow naturally or due to a climate event. Argentina burns through dollars importing machinery and medicines. The trouble starts when those dollars are used to prop up the currency, until they run out. Can’t defend the peso? Then the options are to crash it or freeze capital outflows. The IMF deal clearly suggests the former, leading to spiking inflation, stalling growth and eroding wages.
Against this backdrop, Mr Milei’s strategy of export-led recovery and spending cuts appears dangerously optimistic. He risks causing private domestic demand to collapse, unless Argentina can attract foreign money. Homegrown private investment will probably prefer dollar assets over industrial expansion. This is unsustainable, as Mr Milei is already facing massive protests. The October congressional midterms could become a referendum on his “chainsaw” economics. If cuts trigger recession or inflation returns, his approval will plummet. Mr Milei could stabilise Argentina more effectively by taxing dollar export windfalls and saving the greenbacks in a sovereign wealth fund. This worked in neighbouring Chile. Better still: follow South Korea’s model of subsidies and currency depreciation, using its US alliance to reinvest export earnings in state-led industry.
What’s economically rational is politically toxic to Mr Milei’s libertarian creed. Austerity isn’t buying time for industrialisation. It’s locking Argentina into a capital-friendly, resource-exporting model aligned with US interests. That suits the agro-export bloc that supports Mr Milei. Long a sick man of South America, Argentina remains trapped in low-value commodity exports instead of building high-value industry. Mr Milei sees the real cure – state-led green development – as worse than the disease. In chasing ideological purity and Trumpian favour, he deepens Argentina’s chronic instability and drags the IMF’s global credibility down with him.
