US Congress warns Argentina could be forced to devalue or default on its debt

Argentina could be forced to devalue its currency or default on its debt, warned a report by the Congressional Research Service (CRS), the United States Congress’s public think tank. The document, dated December 30 but made public this week, said that “Argentina’s main source of foreign currency is the remaining balance on its currency swap line with the United States,” which both countries struck in October. The swap line, part of the U.S. Exchange Stabilization Fund (ESF), totals US$20 billion, of which, according to private estimations, Argentina used over US$2 billion. Neither the Central Bank nor the Economy Ministry confirmed the amount the country spent, which is new debt with the United States Treasury. The report is part of an evaluation by the U.S. Congress of Donald Trump’s aid to Argentina. If it has “concerns” over the loan, the legislative body “could, for example, limit the Treasury Secretary’s ability to use ESF funds to support foreign governments or require the Treasury Secretary to disclose details about ESF operations involving foreign governments,” the CRS document stated. It added that Congress could alternatively endorse “greater financial support to Argentina.” Milei under review The report also delves into Argentina’s situation over the past two years, under Javier Milei’s presidency. It concluded that the administration’s “economic reforms have had mixed results.”  “The economy is growing, inflation is down, and the government is running a budget surplus,” the report said. However, the document also mentioned the fluctuation in unemployment figures — with unemployment somewhat going down after a surge, but with a growth in informal jobs — and the “protests against the government’s spending cuts.”  “The Central Bank’s foreign-exchange assets are largely offset by foreign exchange liabilities, and Argentina does not have a strong trade surplus to generate inflows of foreign currency,” the report said.  “If the Milei government finds itself without the adequate foreign exchange to make debt payments and sustain exchange rate policy goals, it will likely face difficult policy decisions, such as whether to default on its debt for a tenth time or allow more flexibility in the value of the peso,” it added, saying that, under such a scenario, the government could seek additional financial support from the United States, the International Monetary Fund (IMF), or other lenders.  “The prospects for securing such support are unclear,” the report added. The CRS mentioned the currency run ahead of the October 26 midterm legislative elections, during which “to keep the peso in the exchange rate band, Argentina’s Central Bank intervened in foreign exchange markets” by selling U.S. dollars.  “However, there were questions about how long the Central Bank could sustain this policy. For example, in one three-day period, it sold more than $1.1 billion in foreign currencies,” it detailed.  “Going forward, questions persist about the stability of the Milei administration’s exchange rate policies and Argentina’s ability to honor looming increases in scheduled debt payments,” the document said, adding that there are doubts about whether the country would remain on track with its program with the IMF.