This involved the Argentinian Central Bank dipping into it's scant dollar reserves in order to sell the dollar and buy pesos, after the peso crashed 10% following Milei's severe election defeat in Buenos Aires province (home to a third of Argentinian voters). Markets now believe Milei will suffer a defeat in the upcoming Congressional elections in October.
Why is Milei so desperate to keep the value of the peso high? Why not let the currency take the strain of the structural changes Argentina is undergoing?
It's to do with Milei's policy of dollarization. This involves pegging the peso to the dollar, so that Argentina's dollar-denominated debts are easier to service.
Borrowing in someone else's currency is foolish as it leads to vulnerability to currency movements. Pegging your currency to a powerful currency you don't control is equally foolish - the Federal Reserve doesn't take Argentina's economy into account when it makes decisions.
Milei could have got around this by maintaining strict currency controls while he restructured the economy. Unfortunately he lifted currency controls in April. An unforced error.
Wasting dollars on propping up the peso means the bond markets are now worrying if Argentina has enough dollars on hand to meet debt repayments. So Argentinian bond markets are now in turmoil.
The Trump administration has pledged help. Here is a key line in Scott Bessent's long X post:
...the United States stands ready to purchase secondary or primary government debt
Purchasing Argentinian bonds in the secondary market just means the USA acquires the bonds at a deep discount. But purchasing bonds in the primary market means the US govt is lending directly to Argentina.
The Americans will want something in return - the Trump administration is one of the most transactional in American history.
Does Milei know this? If he has any survival instincts, he'll want to try to resolve this without American help.
The problem of a lack of dollars to hand remains. Even if the Americans lend Milei money, they'll want the loans be repaid the same as other bond holders.