At a critical moment for his government, Javier Milei received economic and political support from the president of the United States, Donald Trump, this Tuesday after a meeting the two held in New York.

"He has done a fantastic job," said the president, sitting next to the president Argentine.

When Reporters asked him if he was going to “rescue” the Argentine economy, Trump replied that they don't need it. “We are going to help them,” he said.

Some details about what type of financial aid the US will give to Milei's government were published this Wednesday by Treasury Secretary Scott Bessent on the social network guarantees to ensure payment compliance.

That loan would be delivered through the Exchange Stabilization Fund (ESF), an emergency Treasury reserve fund used to influence the exchange rate.

On the other hand, Bessent continued, the Treasury is currently negotiating with Argentine officials a $20 billion “swap line” with the Central Bank.

(A swap line is an agreement that allows two countries to exchange currencies for a specified period of time, with the commitment to revert the transaction at an agreed exchange rate).

Finally, the US “is ready to buy government debt,” the minister explained, and is working with the Argentine government to end a tax-exempt system for commodity producers who convert foreign currency.

“Argentina has the tools to defeat speculators, including those seeking to destabilize Argentine markets for political purposes,” Bessent said.

If the financial aid materializes, it would be a highly unusual move.

President Bill Clinton, in late 1994,when Mexico suffered the economic recession known as “the Tequilazo” - amid a sharp devaluation of the peso and massive capital flight - lent the neighboring country nearly $20 billion from the Treasury's emergency fund, ESF.

From the outside, it came as a surprise to many observers that things had moved so quickly.

The euphoric era in which Milei received applause from investors for cutting public spending and fiscal deficit, lower inflation, bolstered growth and reaching an agreement with the International Monetary Fund (IMF) of $20 billion, began to fade in the middle of this year.

Doubts arose in the financial markets about the effectiveness of his plan when it became clear that the Central Bank's reserves were practically in the red and that political support for his party was decreasing.

In recent days, investors began to show signs of distrust and under growing pressure from the markets, the country's Central Bank made an emergency move and last week allocated more than $1 billion of its meager reserves to stabilize the foreign exchange market.

Amid this panorama, many are wondering how the Argentine economy deteriorated so much - and in just a few months - to the point that Trump came out to show his support for Milei.

These are some of the causes:

1. Dollar Shortage

When Milei came to power in December 2023, “she got off to a good start,” says economist Marina Dal Poggetto, executive director of the firm Eco Go Consultores.

At that time, the Central Bank focused on buying lots of dollars and reducing the fiscal deficit, lowering the risk the country posed to investors and receiving a vote of confidence from the markets.

With a pragmatic approach, the economist tells BBC Mundo, the Argentine president managed to maintain governability.

“Milei sits on the exchange rate to lower inflation,” that is, she puts a cap on the dollar so it doesn't rise too much, explains Dal Poggetto.

This model was sustained, she adds, but began to fail when the country began to run out of dollars.

The government managed to get more greenbacks and then, in April of this year, The IMF granted it a loan that gave the Argentine economy a breathing space.

The country committed, among other things, to refinance the maturities of its public debt in local and foreign currency, but it did not accumulate a sufficient amount of dollars to guarantee payments.

With the shortage of dollars,a kind of monetary squeeze occurred with high interest rates that affected economic growth.

By July, things were not looking good; the Central Bank had not accumulated the expected reserves, and, like a snowball, market distrust had increased in recent weeks.

By September, when the government suffered an electoral defeat in the province of Buenos Aires, its position was weakened in the eyes of investors.

Tensions eased this Monday when the US government offered Milei financial assistance and after Trump's messages of support this Tuesday.

Also this week, the Argentine government announced that it was suspending calls "grain withholdings," that is, the taxes the government applies to agricultural exports, with the aim of obtaining foreign currency amidst the currency tension.

This temporary suspension of taxes will extend only until October 31, five days after the legislative elections, also known as midterm elections, in order to increase the circulation of dollars in the short term.

2. Political Context

Market expectations pointed to Milei making fiscal adjustments, accumulating dollars, and her party winning a series of elections leading up to the 2027 presidential elections.

She made the fiscal adjustments, but the accumulation of dollars and voter support are two factors that are apparently taking their toll on Milei's government.

The combination of an electoral defeat and recent corruption scandals has not helped her.

Her party lost to the Peronist opposition in the legislative elections in the country's largest electoral region, the province of Buenos Aires, which the president himself had proposed as a key test of his government at the national level, setting off an alarm light in market confidence.

And among the corruption scandals, the release of audio recordings linking Karina Milei, sister of President Javier Milei, to an alleged collection of bribes.

The combination of several factors has generated “a combination of financial, exchange rate and political tension,” says Lorenzo Sigaut Gravina, economist at the consulting firm Equilibra.

With a minority in Congress, the government suffered the rejection of several of its key projects, while the governors, for their part, demand resources for their provinces in exchange for supporting the reforms.

On the other hand, Milei's approval ratings have dropped, and that's also making investors nervous.

One of the challenges facing the Argentine president right now is to make it to the end of October without any new setbacks and, From there, look for ways to forge political agreements to sustain his plans beyond that date.

3.Overvalued Peso

Various economists agree that the Argentine peso is overvalued. Some say between 20% and 30%.

Mauricio Monge, senior economist for Latin America at Oxford Economics, tells BBC Mundo that this overvaluation is one of the key causes of the financial turmoil of recent days.

Since confidence is needed in the markets and payments to bondholders maturing in the coming months are assured, the economist maintains that "what the country really needs is a depreciation of the currency."

There There are different ways to do this. For example, completely liberalizing the exchange rate, which "is not the most advisable," says Monge.

Another path is to modify the limits of the bands (the ceiling and the floor) within which the exchange rate moves up or down. In other words, to expand the limits of the dollar's movement.

Argentina needs to generate a constant flow of dollars. At the moment, that is not happening, and exports are not growing at the expected levels.

The idea would be to lower imports and increase exports so that more dollars enter the country.

That policy would create a higher trade surplus (more exports than imports) so that the Central Bank and the Treasury can accumulate reserves.

Milei will face a crucial electoral test in October when around half of the Argentine Congress is renewed, which will determine support for her economy agenda.