How Trump's defeat in US midterms might affect Argentina

The Republican Party's loss in the US midterm elections has generated speculation about the extent of Donald Trump's ability to continue providing financial assistance to President Javier Milei, Argentina's leader, in the future. Following the Democrats' victory, controlling both houses of Congress, they might seek to limit such support in the future.

This concern has prompted the introduction of legislative measures aimed at restricting the federal government's intervention in Argentina's financial matters. Nevertheless, US Treasury Secretary Scott Bessent has maintained that he would be willing to replicate a similar operation, asserting that it had been beneficial for the United States.

The forthcoming Democratic Party's stance on Latin America, particularly Argentina, will be crucial in determining their approach to this issue. Argentina and the United States have established a deeper relationship due to the Vaca Muerta shale formation in Argentina and the stance taken by Democrats on China. Trump's administration had consistently urged Argentina to limit its ties with China through the US Ambassador in Buenos Aires, Peter Lamelas.

Internationally, high interest rates, a result of Trump's policies, have made it challenging for Argentina to access international credit markets. Politically, Trump remains Milei's primary ally, but his influence has been weakened, according to the Centro de Economía Política Argentina (CEPA) think tank. The ongoing conflict with Iran has led to increased fuel prices, benefiting Argentina's trade surplus and enabling the Central Bank to acquire $14 billion in foreign currency.

The Trump administration's October 2023 intervention in Argentina's midterm election campaign involved offering a $2 billion currency swap and direct intervention in the foreign exchange market. However, if the Republican defeat leads to changes in Trump's Cabinet or shifts in policy priorities, Milei's government might face difficulties in accessing foreign currency financing next year.

Democrats' introduction of bills in both chambers of Congress, such as the No Argentina Bailout Act and the American Farmers First Act, demonstrates their intent to block what they perceive as the "Milei bailout." While a Democratic majority in Congress would not prevent the Treasury from providing further assistance, it would make such a move more challenging and increase its political cost.

The Milei government anticipates facing around $4 billion in obligations next year and requires financial assistance from the United States. So far, international lending institutions have remained compliant with Trump's demands for continued financial support to Milei. However, an opposition-controlled Congress and a weakened White House could alter these priorities, according to CEPA.

A Democratic victory might enhance global financial conditions while simultaneously weakening the political backing that Argentina's economic program relies on as it approaches 2027.