US banks reluctant to lend $20 billion to Argentina without collateral

Major US banks, including JPMorgan Chase, Bank of America and Goldman Sachs, are reportedly refusing to lend Argentina $20 billion without explicit assurances or collateral, according to The Wall Street Journal.

The reluctance highlights the difficulties fending off attempts to stabilise the South American nation’s finances as its economy falters and relations with foreign lenders sour.

That caution among banks has to do with certainty about what collateral Argentina would offer for the credit.

According to the Journal, bankers are waiting for the US Treasury Department to clarify whether the Argentine government would be required to provide collateral, or whether Washington would actually backstop the move.

Treasury-led effort aims to boost confidence in Argentina

US Treasury Secretary Scott Bessent said last week that the Treasury was in discussions with banks and investment funds for a $20 billion program to fund the purchase of Argentine sovereign debt.

The measure aims to restore confidence in the market and help the country tap the international capital markets.

However, the loan facility has yet to be formalised, and the report stated that it may not come together if the collateral issue continues unresolved.

The lack of information regarding the deal's structure has increased anxiety for financial institutions, which are likely to bear significant risk.

"Discussions on this facility are still ongoing, and we look forward to sharing more information once the talks are completed," a US Treasury spokesperson told Reuters.

Banks are cautious amid uncertainty

While the Treasury has taken the lead in negotiating the proposal, the banks involved have been noticeably cautious in their public statements.

Goldman Sachs declined to comment, and JPMorgan Chase, Bank of America, and Citigroup did not respond to Reuters' requests for comment.

The sensitivity of the negotiations and the possible exposure that such a loan is likely to represent is also conveyed in silence.

The reluctance of creditors in the US, in turn, reflects a greater scepticism over any Argentine promises, analysts argue.

Chronic debt crises, currency instability, and tensions with multilateral institutions like the International Monetary Fund (IMF) have plagued the country for decades.

Argentina secures separate stabilisation deal

While awaiting further details on the private-sector loan, Argentina's central bank published on Monday that it had entered into an exchange rate stabilisation deal worth $20 billion with the US Treasury Department.

The statement said that the deal brings total US support for Argentina to $40 billion and is "the largest US intervention aimed at shoring up the peso and calming local markets."

Treasury has also started buying Argentine pesos in the open market, a step geared at supporting and stabilising the currency.

The parallel stabilisation accord implies an increasing degree of participation by Washington in Argentina's economic resurgence, at a time when the specifics of the bigger financing facility are still unfolding.

Potential friction with the IMF

The initiative could also provoke strains with the IMF, long a key partner of Argentina on its recent economic programs, the Journal report said.

Funds officials are said to be worried that the Trump administration will force Buenos Aires to pay claims backed in the United States before the multilateral institution's larger loans to Argentina.

This might further obfuscate the relationship between the Fund and Argentina's long-term outlook. It also raises the question of how direct funding from Washington will affect the traditional structure of international financial cooperation.

Outlook remains uncertain

An outlook for the $20 billion lending facility still hangs in the balance. Banks may not want to go ahead with the deal without explicit collateral or Treasury backing.

Whether the initiative gets off the ground or joins an endless line of ambitious rescue efforts that did not land will depend on the outcome of the discussions this week between US officials and financial institutions, and Argentina's government.

The possibility is greatest for Washington and Buenos Aires as negotiations continue between the two. The possibility of new US-backed financing represents a potential lifeline for Argentina.

For US banks, this is a confidence test in one of Latin America´s most volatile economies.