By Andrea Shalal, David Lawder and Susan Heavey
WASHINGTON (Reuters) -U.S. Treasury Secretary Scott Bessent on Monday said that "all options" were on the table for stabilizing Argentina, including swap lines and direct currency purchases, while underscoring President Donald Trump's confidence in Argentine President Javier Milei and his economic team.
Bessent told reporters any U.S. action would be "large and forceful," but said no steps would be taken until after he and Trump meet with Milei in New York on Tuesday on the sidelines of the United Nations General Assembly.
Asked if Washington could act immediately afterwards, Bessent said: "We'll see where the markets are and what the level of outflows are - or maybe the outflows turn into inflows - but no one should doubt the resolve of this administration, or my resolve."
Bessent refused to be drawn on what specific steps the U.S. might take, but said, "I can tell you that it will be large and forceful."
Argentine financial assets rallied on Monday on the news, with U.S.-traded stocks up over 10% and the peso strengthening, after sharp drops in recent weeks that included international bonds declining more than 20% for the year through Friday.
Markets have been roiled by corruption allegations inside Milei's circle and a larger-than-expected loss in a local election in Buenos Aires, reflecting growing frustration with austerity measures and triggering investor concern over Milei's ability to continue to reshape the economy, with October midterm elections on the horizon.
Bessent, a former hedge fund executive, said he did not see a risk of financial contagion from the fallout and underlined Washington's confidence in Argentina's implementation of economic reforms. Since taking power in late 2023, Milei has had some success in taming high inflation and achieving a budget surplus.
"What they're trying to do is bolster Argentina until the elections - if they can get that far," said Mark Sobel, a former senior U.S. Treasury official and current U.S. chairman of the Official Monetary and Financial Institutions Forum think tank.
"Milei deserves tremendous credit for what they've done on the fiscal and monetary policy front ... but the exchange rate is just vastly overvalued and they've got to fix that," he said. Serious steps to do that would cause inflation, he said, posing further challenges for Milei ahead of the election.
NO NEW TERMS FOR US SUPPORT
Bessent first announced U.S. support for Argentina in a social media post, saying all options were on the table.
"These options may include, but are not limited to, swap lines, direct currency purchases, and purchases of U.S. dollar-denominated government debt from Treasury's Exchange Stabilization Fund," Bessent wrote on X.
He told reporters any U.S. action would not result in new demands or conditions beyond Argentina's continued adherence to the terms of its loan deal with the International Monetary Fund.
"I can't speak for the president, but as far as Treasury is concerned, there's no conditionality," he said.
"We remain confident that President @JMilei's support for fiscal discipline and pro-growth reforms are necessary to break Argentina's long history of decline," Bessent wrote on X.
Argentina in April signed a new $20 billion four-year loan deal with the IMF, where the U.S. is the biggest shareholder. The deal required the country to dismantle years-long currency controls and loosen its grip on the peso, but economists say the currency remains overvalued.
Argentina's central bank made its largest daily dollar sale in nearly six years on Friday as it continued to use reserves to support the local currency, meeting strong dollar demand from institutional investors wary of political instability.
The bank's latest intervention was for $678 million, bringing the total amount of dollars sold in the last three sessions to $1.1 billion.
Argentina shored up dwindling foreign reserves in April by renewing a $5 billion activated swap line with China for another year.
TREASURY SATISFIED WITH IMF'S POSITION
Bessent told reporters that the IMF was unable to make adjustments to its Argentina program until after October's legislative elections. He said he spoke with IMF chief Kristalina Georgieva over the weekend and was "very satisfied" with the global lender's position.
It was not immediately clear if Georgieva, who is also due to attend the U.N. meetings, would meet with Milei in New York. The IMF had no immediate comment on Argentina's situation.
Asked if Milei ally Elon Musk had played a role, given reports that Musk spoke to Trump on Sunday, Bessent said: "not that I know of."
He said the Trump administration hoped to solidify what it sees as a rightward shift in Latin American countries, including potentially Colombia.
Bessent blamed Argentina's turmoil on skittish investors with some "muscle memory" from Argentina's previous administration.
"Either there's some risk management or a rush for the exit with the idea that the opposition could do well in the upcoming election," he said.
(Reporting by Andrea Shalal, David Lawder and Susan Heavey; Editing by Andrea Ricci and Rosalba O'Brien)
