Across the Rio de la Plata

At sunset on a clear day you can see thirty miles across the Rio de la Plata from Colonia de Sacramento to the skyscrapers of Buenos Aires as the sky behind them turns orange. Julio Cortázar once wrote: ‘I speak of Uruguay and Argentina as one country because they are, despite the nationalists.’ When Argentina’s economy collapsed at the end of 2001, Uruguay’s soon followed. It happened again with the Covid-19 pandemic and its aftermath. Argentina has 45 million people, Uruguay three million; the Buenos Aires metro area is more than seven times the size of Montevideo, where two-thirds of the country lives.

After freeing itself from Spanish rule (with help from Buenos Aires) under the leadership of José Gervasio Artigas in 1814, the Banda Oriental – the east bank of the Uruguay river – was threatened both by the centralising ambitions of Buenos Aires and by invasion from Portuguese Brazil, which materialised in 1816. In 1825, troops led by Juan Antonio Lavalleja crossed the river, expelled the Brazilians, declared independence – then faced off against Buenos Aires again. (Artigas’s tomb, also a museum, lies under a massive equestrian statue of him in Montevideo’s Plaza de la Independencia.)

Britain helped end the conflict in 1828, pleased with its new buffer state, the República Oriental of Uruguay, created in 1830, independent of the United Provinces (Argentina), in a South Atlantic tightly knit into its industrial textile economy (in Industry and Empire, Eric Hobsbawm estimates that the region accounted for 40 per cent of British textile consumption in the 1830s and 1840s). Neither Brazil nor Argentina abandoned designs on the República Oriental until the late 19th century, after the War of the Triple Alliance. It is fiercely independent, as evidenced in its bicentennial celebrations.

Despite all they have in common, including long dependence on beef exports to British and later American markets, Argentina and Uruguay could hardly be more different. In his address to the UN last month, the Uruguayan president, Yamandú Orsi, spoke of how he ‘can walk among the people without bodyguards, and can enjoy a football match in the stands of a stadium like any other supporter’, though he also expressed concerns about child poverty and growing violence and inequality in his country. The Argentine president, Javier Milei, in contrast, lambasted the UN and the Biden administration to curry favour with Trump, in the hope of keeping Argentina’s economy from collapsing due to the outflow of dollars.

The $20 billion bailout plan, which may or may not materialise in full, was duly pledged to get Milei re-elected – except that Milei is not running; mid-terms are coming up. Given his party’s dramatic defeat in the province of Buenos Aires recently, Trump – however confused – is worried Milei will get hammered nationally, too. Will the influx of dollars, which will go towards paying off creditors like the IMF, arrive fast enough to translate into enough votes to keep the Argentine jalopy running until his term ends? Although Trump and Milei have avoided a run on the peso (for now), with financial markets immediately reversing course, the ‘deal’ remains a risky proposition. It also makes a mockery of the ‘libertarian’ economic philosophy Milei likes to profess in international forums.

Back in Buenos Aires, on Saturday Milei held a rock concert with his band to try to jump start his party’s electoral campaign. He sang national hymns altered with ideological and partisan lyrics. (His party, La Libertad Avanza, had to drop its leading candidate because of his demonstrated ties to a narcotrafficker set to be extradited to the US; he was replaced by Karen Reichardt, a former Playboy model from the 1980s.)

The IMF’s technical personnel are demanding to know exactly how many dollars Milei will get. Under pressure from the MAGA base – above all, soy farmers and their congressional representatives – for putting Argentina first, Scott Bessent, Trump’s Treasury secretary, walked back his initial commitments to ‘do whatever’s necessary’: ‘We are not putting money into Argentina,’ he said. Rather than a bailout, with the US Treasury opening an emergency line of credit by buying Argentine bonds, Bessent redefined the deal as a swap: the Treasury will buy several billions of dollars worth of Argentine pesos.

Bessent tried to sell it to American voters in terms of national security, an issue of ‘maintaining our strategic interest in the Western Hemisphere’. The US could not afford to let an ally go. He called Argentina a ‘beacon’ for other countries in the region. To G7 finance ministers, he emphasised the importance of Milei’s economic policies ‘succeeding’ (they have already failed). The Argentine finance minister, Luis Caputo, has gone to Washington ‘to make concrete what was announced’. Bessent says Milei is ‘doing a fantastic job’.

Markets are less convinced, both of Milei’s performance and of Bessent’s commitment to the bailout. Some are betting the money takes time; and/or that not all of it arrives; and/or that it gets held up, shut down, or blocked by Congress. There were anywhere from $300 to $450 million worth of swaps between the Argentine Central Bank and US Treasury last Wednesday. The run on the peso continued, with stocks falling sharply and bond yields rising along with the country’s risk rating.

Should Argentina fail, Uruguay would suffer the equivalent of a hurricane, presenting the coalition government with a serious challenge. The Frente Amplio is a broad coalition of left parties, sects and tendencies founded in 1971, that, like the PT in Brazil, tacked hard to the centre since first coming to power in 2004.

Unlike Brazil, however, Uruguay has a vocal and powerful trade union movement anchored in the large public sector – in Montevideo especially – that affects the political field of gravity. The privatisation of state enterprises was rejected by plebiscite in the 1990s. The right was voted out of office last year after a single term (enough time to repeal the strict banking laws that made money laundering difficult). Intellectuals, too, play an important role in public life. Given the country’s history of dictatorship, armed struggle, torture, exile, imprisonment and disappearance, many are on the left.

There’s little chance of a Uruguayan equivalent of Milei in Montevideo, but it’s bad enough to have him in the Casa Rosada in Buenos Aires. (His sister, Karina, the jefa, was recently caught on tape apparently taking kickbacks for contracts with the government agency responsible for disabled children – exactly the sort of practice by the casta política that Milei pledged to end.) Unless Argentina’s economic fortunes improve, Orsi’s government will have to deal with the fallout crossing the river.