A Donald Trump proposal to bail out struggling Argentina with a $40 billion loan is bumping up against economic reality with banks being asked to provide half of the amount demanding collateral or federal assurances.
According to a report from the Wall Street Journal, financial institutions, including JPMorgan Chase, Bank of America and Goldman Sachs, are “struggling” to come up with a loan they would feel comfortable with.
With Trump pushing to assist Argentine President Javier Milei’s government, the plan was to create a financial package made up of a “$20 billion currency swap with the U.S. Treasury Department and a separate $20 billion bank-led debt facility,” the Journal is reporting.
According to the report, it is turning out to be far easier to make the proposal than it is to make it a reality.
“While banks normally arrange these types of rescue facilities on their own, Treasury has been controlling the broader package and banks feel they can’t act without backing from Washington, some of the people said," the Journal reported.
"The loan facility hasn’t been finalized and might not come together if the banks’ collateral question isn’t resolved, they said. U.S. banks haven’t been lending to Argentina, and the country has been shut out of the international capital markets for years.”
The report adds that Argentina has already been the recipient of 20 bailouts from the International Monetary Fund (IMF) since the 1950s — and that has bankers nervous.
There is also a risk to the U.S Treasury which would “swap $20 billion for a roughly equivalent amount of Argentine pesos,” which are rapidly depreciating.
According to Brad Setser, a former deputy assistant Treasury secretary for the Obama administration, ”The risks from these operations are unusually large. Should the peso depreciate, which many think is not only likely but necessary, the Treasury would be left holding assets that have fallen in value.”