Argentina's central bank says it signed $20 bil. currency swap deal with US

This illustration picture shows a 100 USD banknote on top of Argentinian pesos in Buenos Aires on Oct.10, 2023. AFP-Yonhap

Argentina's central bank said on Monday it signed a $20 billion exchange rate stabilization agreement with the U.S. 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 U.S. and Argentina, but it provided no technical details.

"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 central bank said, using an acronym for itself.

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

The U.S. Treasury did not immediately respond to a request for details on the new swap line and had not issued its own statement about the arrangement.

Treasury Secretary Scott Bessent said last week that the arrangement 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 that the U.S. 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.

He has announced several U.S. purchases of pesos in recent weeks, but has declined to disclose details.

Election

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

Milei, who has campaigned to solve Argentina's economic woes through a fiscal spending cuts and dramatically shrinking the size of government, has been handed a string of recent political defeats in face of his more socially focused opposition.

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

But he added that a win for Milei's party would help him block any policy repeal efforts.