The Chainsaw Stalls: Can Milei Cut Through Argentina’s Currency Collapse?

What is discussed, and when

1. 3:00 – 6:00: Surf Shark
2. 6:00 – 9:00: Surf Shark
3. 9:00 – 12:00: Bloomberg, People’s Bank of China
4. 15:00 – 17:53: Bloomberg

Notable quotes from "The Chainsaw Stalls: Can Milei Cut Through Argentina’s Currency Collapse?"

• Before we dig into what has been going wrong, let me tell you about this week’s video sponsor, Surf Shark, who've been my VPN of choice for quite some time. Surf Shark is an…

  about Surf Shark · at 5:19

• But it also raised eyebrows in Washington. Behind the scenes, the bailout may be about more than Argentina. Washington’s support for Milei coincides with growing concern over…

  about People’s Bank of China · at 9:37

• Saying the currency is too strong and hurting Argentina’s competitiveness. You also don’t need to spend billions of dollars supporting a currency that’s undervalued. The…

  about Bloomberg · at 10:53

Who and what is mentioned in this episode?

Companies & orgs

• Bloomberg — Company · 3 mentions · first at 11:05
• International Monetary Fund (IMF) — Company · 3 mentions
• People’s Bank of China — Company · 1 mention · first at 9:49

Sponsors

• Surf Shark — Sponsor · 3 mentions · first at 5:25

Full transcript with timestamps

0:00 Argentina has been burning through dollars like a gambler on borrowed time. In just seven trading sessions, its Treasury sold $1.8 billion dollars to defend the peso and maintain an exchange rate that markets expect to collapse the day after the midterm elections. Interest rates on short-term debt surged past 87% this week, and the central bank is running low on ammunition. The Argentine government is intervening in spot and futures markets, reinstating selective foreign-exchange controls, and clinging to a currency band that looks increasingly fictional.

0:39 President Javier Milei insists that the peso must hold—at least until October 26, when half of Congress is up for grabs. But the more dollars he throws at the problem, the more obvious it becomes that the current exchange rate is unsustainable. A U.S. Treasury pledge of support last month managed to calm markets but didn’t reverse the slump. Now, the U.S. has escalated its involvement. On Thursday this week, Treasury Secretary Scott Bessent announced that the US Exchange Stabilization Fund, an emergency fund run by the US Treasury had directly purchased Argentine pesos. This is a very unusual move - the ESF has only intervened directly like this four times in the last thirty years – it’s most recent high-profile intervention was more than a decade ago and came as part of a G7 effort to control a spike in the yen after the Fukushima earthquake in Japan back in 2011. The ESF most famously lent

1:44 $20 billion dollars to support Mexico after its currency collapsed in 1994. Mexico drew down $12 billion dollars of that twenty and eventually repaid the US with a profit. Bessent also finalized a $20 billion currency swap framework with Argentina’s central bank, declaring Milei’s reform program to be “of systemic importance.” The peso rebounded slightly on this announcement, and Argentina’s dollar bonds rallied. But the intervention has sparked bipartisan backlash in Washington. Critics on both sides of the aisle are asking whether this is in America’s interests. Republicans question whether it aligns with President Trump’s declared “America First” agenda – which is possibly being replaced with a - America First—unless Argentina needs twenty billion dollars and a hug agenda…

2:39 Democrats are probing whether hedge funds associated with Scott Bessent played a role in the deal and whether taxpayer dollars should be used to support a foreign president whose policies may be hurting American farmers. When Javier Milei took office in December 2023, he brought a chainsaw to the office—both literally and metaphorically – but most importantly literally... The self-described libertarian economist promised to cut through decades of Peronist interventionism and restore Argentina’s economic credibility.

3:15 His early moves were dramatic: he balanced the budget within a single quarter, cutting the deficit from 5% of GDP to zero. Inflation, which had been running at over 200% annually, began to fall sharply. By mid-2025, monthly inflation had dropped to around 2%, and the IMF was publicly praising his fiscal discipline. One of Milei’s most tangible successes came in the housing market. In his first month in office, he repealed Argentina’s rent control laws—regulations that had distorted the rental sector, driving landlords out of the market, and leaving thousands of usable apartments vacant. The results were immediate. Listings on Argentina’s real estate platforms surged by 180%. Real (meaning inflation adjusted) rents fell, and long-term leases returned. The Cato Institute described it as a “textbook case” of deregulation improving outcomes for both tenants and landlords. High inflation in Argentina had also – pretty

4:25 much - halted home sales – as the extreme inflation meant that it made no sense for anyone to make any sort of long term loan – thus – you couldn’t borrow money to buy a house. Now that inflation has fallen, mortgages are back, and houses are once again transacting. Milei’s economic philosophy, which is rooted in free-market orthodoxy, stood in stark contrast to the populist statism of his predecessors. While his flamboyant style drew comparisons to Donald Trump, his policy agenda was more Milton Friedman than MAGA. He slashed tariffs, scrapped export taxes, and began privatizing state assets – this is pretty much the opposite of what Trump has been doing. For a country long mired in inflation, capital controls, and fiscal mismanagement, Milei’s early months offered a rare glimpse of coherent reform.

5:19 Before we dig into what has been going wrong, let me tell you about this week’s video sponsor, Surf Shark, who've been my VPN of choice for quite some time. Surf Shark is an easy to use and affordable VPN app for Windows, Mac, Android, iOS, and more. With a VPN, all of your internet traffic goes through a secure encrypted tunnel, adding a layer of privacy protection, which is particularly important if you use public Wi-Fi networks. Surf Shark improves your privacy, making it harder to be tracked online and can bypass internet censorship, which has become more of an issue in recent years. Surf Shark doesn't just protect your data. You'll also find that if you log into streaming services in different countries, different content is available. With Surf Shark, no matter where in the world you are, you get to take the internet from home with you.

6:13 Surf Shark is fast, reliable, and they don't collect or track your data. The best part is that Surf Shark allows unlimited devices to use the one account. So, with one account, you can protect your friends and family, too. There's no risk in trying Surf Shark as they offer a 30-day money back guarantee. Go to surf shark.com/boyle to get four extra months of Surf SharkVPN. Click the link in the description to sign up Milei initially campaigned on a policy of dollarization—a move that most economists considered unrealistic given Argentina’s lack of reserves – I made a video about that around the time of his election. He then pivoted to a strong peso strategy, believing that a stable currency would help tame inflation. While this approach did contribute to the decline in inflation, it created other distortions: it encouraged imports, discouraged exports, incentivized Argentinians to go on shopping

7:15 sprees abroad, and drained Argentina’s foreign exchange reserves. The peso – which was once a symbol of Milei’s economic discipline, is now at the center of a growing crisis. While Milei’s economic reforms have been bold, his political footing has been growing increasingly precarious. Three major scandals have damaged his credibility: his involvement in a meme coin scheme – I made a video about that in February - the accusations against his sister and chief of staff for taking kickbacks related to pharmaceutical sales, and the resignation of his lead congressional candidate José Luis Espert, who admitted to receiving payments from a businessman now under investigation for drug trafficking. The political fallout came to a head last month, when Milei’s coalition suffered a stinging defeat in Buenos Aires Province—home to nearly 40% of Argentina’s electorate. While the region leans left and his candidates were not expected to win,

8:18 the scale of the loss was worse than anticipated. Analysts interpreted this loss as a sign that voters are tiring of austerity and that corruption concerns are gaining traction. Milei’s alliances with centrist opposition parties have frayed too. Argentina’s congress has already overturned one of his vetoes on a spending bill and is preparing to challenge three more. A new bill passed in the lower house would limit his ability to govern by decree, further constraining his capacity to push through reforms. The Economist notes that Milei’s ability to govern is now in question, and that his political strength—once rooted in popular support—is eroding. With midterm elections approaching - later this month, Milei faces a critical test. Even a modest gain in congressional seats could help him block hostile legislation and shore up his reform agenda. But if the vote goes poorly, his ability to govern—and the durability of his economic program—could be in jeopardy.

9:25 Treasury Secretary Scott Bessent says the United States “stands ready to do what is needed” to support Argentina. That announcement helped calm markets, but it also raised eyebrows in Washington. Behind the scenes, the bailout may be about more than Argentina. Washington’s support for Milei coincides with growing concern over China’s influence in South America. Argentina has an $18 billion swap line with the People’s Bank of China, and Beijing has been deepening its trade ties across the region. Bessent has said Milei is “committed to getting China out of Argentina.” The Trump administration has reportedly asked Argentina to reinstate export taxes on farm products—a move that would benefit U.S. agricultural interests but undermine Milei’s free-market agenda – and make it more difficult for Argentina to get the foreign exchange it needs to pay back its bondholders. Critics point out that it is unreasonable to blame countries like Argentina and Brazil for selling agricultural

10:33 produce to China’s – replacing US producers – as it was the U.S. that started a trade war with its own farm sector’s best customers. Scott Bessent told Fox news late on Thursday that this is not a bailout and that he thinks the peso is undervalued. Most economists disagree, saying the currency is too strong and hurting Argentina’s competitiveness. You also don’t need to spend billions of dollars supporting a currency that’s undervalued. The evidence of overvaluation is in plain sight - Bloomberg wrote an article earlier this week on how thousands of Argentinians are making trips to shopping malls across the border in Chile like it’s Black Friday at Best Buy - stuffing their cars with TV’s, laptops and clothes thanks to the peso’s new purchasing power.

11:23 If your currency makes foreign electronics cheaper than buying rice at home, something may be off… The Atlantic and FT Alphaville both suggest that the bailout is as much about geopolitics as economics. By backing Milei, the U.S. is not just supporting a reformer—it’s countering Beijing’s growing footprint in south America. But that strategy carries plenty of risks. If Milei fails, the U.S. will have spent billions defending a currency and a presidency that couldn’t hold. Brad Setser of The Council on Foreign Relations told Bloomberg on Friday that this is “a gamble that all the problems that Argentina now faces are a function of politics, that Milei can pull a rabbit out of the hat and do better than expected in the October elections.” Bloomberg argue that - for Scott Bessent’s bet to pay off, a lot of things have to go right – things that in the past, have tended to go wrong in Argentina. There’s a famous line in economics:

12:26 that “there are four types of economies—developed, undeveloped, Japan, and Argentina.” And it’s impressive to get your own category in economics textbooks right next to ‘Japan’ and ‘don’t try this at home. But it might not be fun if you live there. Argentina’s currency troubles are by no means unique. History offers a long list of failed attempts to support an artificially high exchange rate. The European Monetary System famously unraveled in 1992 when the UK was forced to exit the ERM under speculative pressure – I made a video on that a while back called “How George Soros Broke The Bank of England.” Scott Bessent worked for Soros and helped break the Bank of England. Now he’s trying to un-break the Bank of Argentina. That’s what we call career range.

13:17 Thailand’s fixed exchange rate against the US dollar faced speculative attacks in 1997 and the attempt to defend it depleted their foreign reserves. The government officially abandoned the fixed exchange rate on July 2, 1997, triggering a major financial crisis. Mexico’s peso crisis in 1994 led to a $50 billion bailout coordinated by the U.S. and the IMF. Each case followed a familiar pattern: a currency held artificially strong, reserves depleted defending it, and a sudden devaluation that shocked markets and citizens alike.

13:58 Argentina has lived this cycle repeatedly. It has defaulted nine times since gaining independence in 1816 and is now the largest borrower from the IMF, accounting for more than a third of its global lending portfolio. The IMF’s current program with Argentina includes a $20 billion Extended Fund Facility, with $12 billion dollars already disbursed. But the targets for reserve accumulation have already been missed, and the peso remains overvalued. The U.S. bailout via the ESF appears to lack the conditionality that helped Mexico recover in 1994.

14:38 As Brad Setser wrote in the FT earlier this week - “Unconditional bailouts incentivize bad policy.” Without a shift toward greater exchange rate flexibility and a sustainable path to rebuilding reserves, Argentina risks repeating the same mistakes. The peso band may hold through the election, but history suggests it won’t hold much longer. Argentina’s economic history is littered with failed experiments—currency pegs, populist spending sprees, and reform programs that collapsed under political pressure. The current moment is worryingly familiar. Milei’s early successes have given way to mounting risks: a currency under siege, reserves running dry, and a reform agenda facing resistance from Congress and the electorate. The IMF has already bent its own rules to keep the program alive. The U.S. Treasury is now deploying nearly all of its liquid reserves to back a bailout that lacks enforceable conditions. The peso remains overvalued. The reserve targets

15:45 have been missed. And the political coalition needed to sustain reform is fraying. Argentina’s - fixed-but-adjustable exchange rate system—where the peso trades within a band and the central bank intervenes at the edges—is inherently unstable and is inconsistent with Milei’s free-market philosophy. It creates perverse incentives, encourages speculation, and risks reserve depletion. Bloomberg estimates that defending the peso until election day could cost as much as $8 billion—an extraordinary sum for a country already running low on reserves.

16:24 The U.S. Treasury’s intervention may have bought time, but it hasn’t changed the underlying math. Defending an overvalued currency is not only economically unsound but politically dangerous too. Floating the peso would restore monetary autonomy, deter speculation, and signal confidence in Argentina’s fiscal consolidation – it would also boost the country’s ability to export and earn the foreign exchange needed to pay off its external debts. Unfortunately - with elections looming, the temptation to delay adjustment may prove irresistible. If history is any guide, the cost of waiting could be steep. If Milei fails, the consequences will extend beyond Argentina. It will be a setback for market-oriented reformers across the region—and a cautionary tale for those who believe that ideology alone can stabilize an economy.

17:21 Argentina is once again testing the limits of economic orthodoxy, political durability, and international patience. The graveyard of reforms may be about to gain another headstone. If you enjoyed this video – you should watch my video on The Alarming rise in government debt next. Don’t forget to check out our sponsor Surfshark using the link in the description. Have a great day and talk to you in the next video – bye.

Questions about this episode

What is discussed in "The Chainsaw Stalls: Can Milei Cut Through Argentina’s Currency Collapse?"?

In order: 3:00 Surf Shark; 6:00 Surf Shark; 9:00 Bloomberg, People’s Bank of China; 15:00 Bloomberg.

What is mentioned in this Patrick Boyle episode?

4 people, works and ideas are mentioned, including Bloomberg, International Monetary Fund (IMF), People’s Bank of China. Each one on this page links to its own page with every episode that mentions it.

How long is "The Chainsaw Stalls: Can Milei Cut Through Argentina’s Currency Collapse?"?

The episode runs 18 min; the transcript is about 2,488 words in 20 timestamped sections.

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