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Planet Money

The obscure pool of money the US used to bail out Argentina

with Brad Setzer, Jeffrey Schaefer

Published November 15, 2025
View Show Notes

About This Episode

The episode examines the U.S. Treasury's Exchange Stabilization Fund (ESF), a relatively obscure pool of money that Treasury Secretary Scott Besant recently used to extend a $20 billion credit line to Argentina without congressional approval. Through interviews with economist Brad Setzer and former Treasury official Jeffrey Schaefer, the hosts trace the ESF's origins, its rare large-scale use in the 1995 Mexican peso crisis, and compare that episode to the current situation in Argentina. The conversation explores how lender-of-last-resort principles, political risk, and Argentina's economic policies shape the chances that the U.S. will ever be repaid.

Topics Covered

Exchange Stabilization Fund Currency crisis Inflation International trade Risk and uncertainty Sovereign debt default IMF bailouts Mexico economic crisis Argentina economic crisis Lender of last resort

Disclaimer: We provide independent summaries of podcasts and are not affiliated with or endorsed in any way by any podcast or creator. All podcast names and content are the property of their respective owners. The views and opinions expressed within the podcasts belong solely to the original hosts and guests and do not reflect the views or positions of Summapod.

Quick Takeaways

  • The U.S. Treasury controls a 90-year-old emergency pool of money called the Exchange Stabilization Fund that can be deployed without congressional approval.
  • Treasury Secretary Scott Besant has offered Argentina up to $20 billion from the ESF via a dollar-peso swap, despite Argentina's long history of debt defaults.
  • The ESF was previously used at similar scale only once, in 1995, when the U.S. lent $20 billion to Mexico during the peso crisis under conditions guided by Walter Bagehot's lender-of-last-resort rules.
  • Mexico ultimately repaid the U.S. with interest, turning the ESF bailout into a modest profit, but it was politically risky and nearly failed for months.
  • Analyst Brad Setzer argues that while the Argentine package is large, it may not be big enough to fully stabilize the country and appears unusually unconditional and opaque.
  • If Argentina draws heavily on the ESF without fixing its underlying currency policy, much of the fund's liquid resources could be tied up there for years, limiting its availability for future crises.

Podcast Notes

Introduction: U.S. shutdown, Argentina bailout, and the Exchange Stabilization Fund

Federal government shutdown context and contrast with Argentina aid

Recent federal government shutdown paused most federal spending[0:21]
• Shutdown lasted about a month and a half, with hundreds of thousands of federal workers furloughed
• Flights were being canceled due to a shortage of air traffic controllers
• Some people did not get their food stamps during the shutdown
Despite paused spending, Treasury announced money for Argentina[0:41]
• Treasury Secretary Scott Besant announced that the U.S. had $20 billion available for Argentina to help with an economic rough patch
• Announcement came while most other federal spending was still paused
Treasury Secretary is allowed to act without Congress in this case[0:54]
• Hosts note that Besant is fully allowed to make this move with no congressional input required
• Reason is a long-standing pool of money controlled by the Treasury Department

What the Exchange Stabilization Fund is

Origins and description of the Exchange Stabilization Fund (ESF)[1:09]
• For about 90 years, the U.S. Treasury has had a kind of private slush fund with billions of dollars in it
• It is called the Exchange Stabilization Fund, originally created to stabilize the dollar
• Most of the time, the fund just sits there and is rarely used
How Besant is using the ESF for Argentina[1:21]
• Besant posted on social media that the U.S. Treasury had started using the fund to buy Argentine pesos
• He said the U.S. stood ready to swap $20 billion more U.S. dollars for their equivalent in pesos

Introduction of expert Brad Setzer and his reaction

Who Brad Setzer is[1:45]
• Brad Setzer is introduced as a senior fellow at the Council on Foreign Relations
• He is described as a go-to expert on international financial flows
Brad's initial reaction to the Argentina swap[2:04]
• Brad calls it a "bold move" by the Treasury Secretary
• He notes that swapping dollars for pesos is basically a loan of billions of dollars
• Brad explains that the U.S. is willing to take those pesos but does not actually want them; Argentina wants the dollars

Stated rationale for U.S. support of Argentina and political context

Besant's public justification for aiding Argentina[2:27]
• Besant said on TV that the U.S. is maintaining a strategic interest in the Western Hemisphere
• He said "America first doesn't mean America alone"
• Besant wants the U.S. to have a strong ally in Latin America
Relationship between Donald Trump and Javier Millay[2:34]
• Donald Trump and Argentina's president Javier Millay are described as seeming to be pretty tight
• The show has talked about Millay before and describes him as a very colorful character
• Millay is an economist who calls himself an anarcho-capitalist
• He has prominent sideburns that make him look a bit like half Wolverine, half lead singer of AC/DC
Millay's economic program and recent results[3:04]
• Millay's big political project is cutting government spending
• He symbolically brandishes a chainsaw at his rallies to represent cutting the state
• Under Millay, Argentina has had a balanced budget for the first time in 14 years
• Inflation in Argentina has fallen from almost 300% annually to closer to 30% annually
Timing of the U.S. offer relative to Argentina's election[3:27]
• Besant's $20 billion offer came just weeks before a big congressional election in Argentina
• That election was widely viewed as a referendum on Millay's budget-slashing experiment
• Trump wants Millay to succeed, and Besant was clear that he hoped the credit line would give Millay a boost
• Besant praised Millay as working against a hundred years of decline and said he had done a fantastic job
• Besant expressed confidence Millay and his party would do well in the elections

Argentina's track record as a borrower and why the move is viewed as bold

Argentina's default history and debts[4:15]
• Argentina has defaulted nine different times on its debts
• It owes the International Monetary Fund (IMF) more than $50 billion, which is more than six times the next closest country
• Brad summarizes Argentina's reputation: it borrows a lot of money and does not repay
• Brad notes that Argentina hasn't repaid IMF loans from 2018-2019, a swap from China, or an IMF loan taken out earlier in the current year
Why Brad calls the bailout bold and unusual[4:47]
• Brad emphasizes that offering $20 billion to Argentina is bold and notable
• He finds it striking that Besant described Argentina as a model and a beacon, noting that bailouts are not usually given to countries considered models
• Brad says this kind of bailout is exciting to him because it has been a long time since there was a high-profile bailout of a troubled emerging market economy
• He notes it has been even longer since the U.S. Treasury put the relatively small sums in the ESF at real risk
Hosts introduce themselves and frame the episode's central question[5:38]
• Hosts identify themselves as Keith Romer and Erica Barris
• They highlight that $20 billion is a lot of money, comparing it to half of USAID's total budget before the shutdown and to a full year of several U.S. law enforcement agencies combined
• They stress that Besant is allowed to offer this money on his own because it comes from Treasury's "private slush fund"
• They preview that the show will explore the long history of the ESF and ask whether the U.S. will ever see the $20 billion again

History and purpose of the Exchange Stabilization Fund

Setting up the conversation with Brad Setzer about the ESF

Returning to Brad as a recurring Planet Money expert[7:53]
• Host notes that they have talked to Brad before about China purchasing U.S. debt
• This time they are talking to him about the ESF that Besant used to help Argentina

Origins of the ESF during the gold standard era

Initial purpose of the ESF in the 1930s[8:23]
• Brad describes the ESF as one of several small tools or pools of money available for the U.S. government when the world needs help
• Its original purpose was to stabilize the price of the dollar relative to gold
How the gold standard worked and why people hoarded gold[8:28]
• In the 1930s, the U.S. was still on the gold standard, and during the Great Depression many people preferred to hold gold rather than dollars
• People could literally go to the bank and trade dollars for gold at about $20 an ounce
• President Franklin Roosevelt did not want people burying gold; he wanted them spending dollars to stimulate the economy
• A clip of FDR emphasizes that confidence of the people is more important than currency or gold in adjusting the financial system
Policy steps taken by FDR and Congress[9:23]
• FDR suspended the gold standard for nine months
• The U.S. eventually returned to an international gold standard but at a lower value of the dollar, reduced significantly
• To keep the new value of the dollar stable, Congress gave Treasury a pool of money to influence the dollar market: the ESF

How the ESF functions after the gold standard

Persistence and flexibility of the fund[10:04]
• Although the gold standard is long gone, the ESF remained in existence
• Congress never reclaimed the money, in part because it is useful for Treasury to have a fund that can be deployed quickly in emergencies
Primary modern uses of the ESF[9:49]
• Brad says the ESF is the pool of money the U.S. uses to intervene in foreign exchange markets
• It is "basically set aside for emergencies" and is rarely used, but its effective use matters when it is used
• Host compares the fund to an object in the corner of Treasury with a "break glass in case of emergency" sign
Examples of past ESF interventions in advanced economies[10:38]
• The fund was used in complicated ways during COVID and the global financial crisis
• In currency markets, it has been used when big world currencies become misaligned
• In the 1980s, the ESF helped reset rates among the dollar, franc, deutsche mark, and yen
• In 2011, it was used to help the Japanese yen after the tsunami
• Usually U.S. interventions involve buying currencies of other advanced economies, not emerging ones

ESF lending to emerging markets and why Argentina stands out

Normal role of the IMF versus Treasury in emerging market crises[11:46]
• Occasionally the ESF will loan money to emerging economies, but large loans to such economies usually come from the IMF, not from Treasury
Rarity of large ESF use for emerging economies[11:05]
• Brad notes that in the ESF's 90-year history, there has only been one other time it was used at this scale to help an emerging economy
• That prior case was in 1995, when the U.S. offered to lend $20 billion to Mexico
• The hosts decide to explore the Mexico case as a way to understand the current Argentina decision

1994-95 Mexican peso crisis and ESF bailout

Introducing Jeffrey Schaefer and his role at Treasury

Jeffrey Schaefer's background and responsibilities[11:48]
• Jeffrey Schaefer says he had been deeply involved with Mexico from when he arrived at Treasury
• He served as Assistant Secretary of the Treasury for International Affairs when Mexico's debt problems arose
• He had worked on NAFTA and monitored Mexico's currency, the peso

Mexico's exchange rate regime and emerging problem

Fundamental issue with Mexico's peso policy[12:12]
• Jeffrey describes the core problem as an unrealistic commitment to an exchange rate that became more and more out of line with reality
Explaining exchange rate management to listeners[12:30]
• Towards the end of 1994, one Mexican peso was worth about 29 U.S. cents, effectively the price of the peso
• The peso's price could move up or down according to supply and demand like any other asset
• The Mexican government had committed to keeping the peso's price high, benefiting Mexican consumers and helping keep inflation down
How Mexico propped up the peso and why that was dangerous[13:13]
• Mexico supported the peso by buying it with reserves, which could be gold or foreign currency like U.S. dollars
• Like most countries, Mexico had billions of dollars in reserves and would spend them to buy pesos whenever its price dipped
• This strategy works only if reserves are sufficient; Mexico did not have infinite dollars
• Mexico also had taken on complicated loans that effectively required repayment in dollars, not pesos
Warnings from U.S. Treasury to Mexican officials[14:03]
• Jeffrey recalls telling senior Mexican officials over coffee that they needed to change course and outlined necessary steps
• He believed Mexico needed to stop propping up the peso and let the market determine the price-i.e., float the peso
• The Mexican government resisted this advice initially

Crisis triggers and the start of the peso collapse

Change in Mexican leadership and attempted controlled devaluation[14:23]
• At the end of 1994, a new president, Ernesto Zedillo, took office in Mexico
• Zedillo accepted the need to stop propping up the peso and tried to let its value decline gradually and in a controlled way
• Jeffrey says the previous team handed Zedillo an untenable situation, and the situation "immediately blew up"
Mexico runs out of reserves and faces a free float[15:06]
• Jeffrey received a phone call from his counterpart at the Mexican Hacienda (their treasury) saying they had run out of money
• Mexico's exchange rate was falling and they would have to let it go the next day
• They no longer had resources to maintain the currency, so the float was no longer a choice but a necessity
Why an uncontrolled devaluation was dangerous[15:36]
• Jeffrey distinguishes between a deliberate gradual devaluation and a forced, sudden float
• Markets realized the government had spent most of its dollars, meaning no one could support the peso's price
• The peso's price would fall sharply, and investors would rush to pull money out of Mexico
• This scenario was likened to a bank run on an entire country
Broader risks to the U.S. and other emerging markets[16:03]
• A Mexican economic collapse would hurt the U.S. economy because the countries are economically intertwined
• Illegal immigration from Mexico, already a hot-button issue, would likely surge if Mexico collapsed
• There was also a risk of contagion: investors might pull money from other emerging markets such as Argentina, Brazil, or Peru

U.S. policy response: internal deliberations and political risk

Leadership vacuum and Bob Rubin's confirmation[16:59]
• At the time, there was no permanent Treasury Secretary; Bob Rubin had been nominated but not yet confirmed
• Jeffrey says Rubin was fishing somewhere in the Caribbean during key early conversations, taking a last vacation before becoming Secretary
• Rubin returned, was confirmed on January 10, 1995, and sworn in at the White House that night with President Bill Clinton present
• Immediately after the swearing-in, Rubin's wife left and Rubin went into a meeting with the president
Decision to support a Mexico bailout and congressional resistance[18:17]
• Rubin and Jeffrey told President Clinton they believed the U.S. needed to bail out Mexico
• Clinton quickly agreed, acknowledging it would be politically awful but necessary
• Members of Congress questioned why the U.S. should intervene in Mexico and criticized putting American taxpayers at risk
Turning to the ESF as plan B[18:33]
• With Congress resistant, the Treasury considered using the ESF as plan B
• The ESF started with $2 billion and had grown, through interest and currency gains, to about $25 billion in usable funds
• Jeffrey says they were certain the ESF was a lever they could pull; the question was whether they should pull it
• For Clinton, using the ESF without Congress was a huge political risk that could affect reelection if it failed
• For Treasury, the risk was that if Mexico did not repay, the ESF would be largely depleted and unusable in future crises
• They concluded they had to act and decided to offer Mexico a $20 billion loan from the ESF

Applying Bagehot's lender-of-last-resort framework to the Mexico bailout

Introducing Bagehot's Dictum

Who Walter Bagehot was and his three rules[19:46]
• Jeffrey used Walter Bagehot's guidance as a model; Bagehot was a 19th-century writer and early editor of The Economist
• Bagehot said that assuming the borrower is solvent, a lender of last resort should lend freely, at a penalty rate, against good collateral

Lend freely: providing more than enough funds

Reason for lending more than seems necessary[20:23]
• Lending freely means providing more money than you think the borrower will need
• The goal is to reassure panicked markets so investors will return
• In Mexico's case, the U.S. $20 billion plus IMF and other contributions exceeded $50 billion, more than Mexico required

Penalty rate: why charge above-normal interest

Purpose of a penalty rate in emergency lending[20:24]
• Jeffrey explains that a penalty rate discourages borrowers from coming to the lender unnecessarily
• It also incentivizes them to return to private markets and repay the official lender as soon as possible
• The bailout rate was better than Mexico could get from banks or investors in crisis but was still relatively high

Good collateral: securing repayment

Collateral arrangements with Mexico[21:16]
• Good collateral means having assurance of repayment
• One part of the U.S.-Mexico deal was that if Mexico missed payments, the U.S. could claim revenue from the Mexican national oil company's exports
• It took weeks of negotiation to settle the bailout terms, after which ESF money began flowing to Mexico

Outcome of the Mexico bailout and its impact on the ESF

Waiting for markets to respond and stress inside Treasury

Initial market reaction and prolonged crisis conditions[22:13]
• After the bailout was in place, the market did not immediately improve
• Jeffrey says Mexican compliance with the program was fine, but interest rates were very high and the peso continued to weaken
• For a time it looked like the rescue might not work
Bob Rubin's reassurance to Jeffrey[22:47]
• Jeffrey recalls Rubin calling him in, noticing visible stress, and saying they had done the right thing and calculations
• Rubin acknowledged that doing the right thing did not guarantee success and said Jeffrey had to be ready to accept possible failure

Gradual recovery and full repayment

How confidence was restored[23:02]
• Gradually, the market changed its mind as investors saw the U.S. persist and keep putting money out
• Jeffrey attributes success to staying the course and demonstrating continued support
Timeline and profit from Mexico's repayment[22:29]
• Mexico began repaying the U.S. by October 1995
• Because of the charged interest, the U.S. made about half a billion dollars in profit on the loan

Jeffrey Schaefer's personal closure and departure from Treasury

The photograph with President Clinton[23:06]
• Jeffrey brought a photo of the day Mexico made its final payment, showing the president shaking his hand with Bob Rubin in the background
• He notes that the photo captured the precise moment when the president thanked him for helping solve the crisis
Leaving government after the mission was accomplished[23:17]
• Jeffrey had been planning to leave government for the private sector and viewed this as mission accomplished
• He left his job at Treasury the next day after the repayment event
• The hosts summarize Mexico as an example of a $20 billion ESF loan that worked

Comparing Mexico 1995 with Argentina 2025 and evaluating the new ESF loan

Parallels between Mexico in the 1990s and Argentina today

Shared structural problems in both countries[25:26]
• As of last month, the ESF has twice extended a $20 billion credit line to a troubled Latin American economy: Mexico in the 1990s and Argentina in 2025
• Argentina, like Mexico then, has been propping up its peso using its dollar reserves to buy pesos on the open market
• Argentina, like Mexico then, owes billions of dollars due within the next year without having the dollars to pay
• Argentina is running a current account deficit, with more money leaving the country than entering, in the billions of dollars
Acknowledgment that Argentina needs funds but question of prudence[26:17]
• The hosts state there is no question Argentina can use an extra $20 billion
• They immediately raise the question of whether it is a good idea for the U.S. to lend this amount

Current size and composition of the ESF

Growth of ESF assets and special drawing rights[26:44]
• The ESF now has significantly more assets than in the 1990s
• Most of the increase is in IMF-related assets called special drawing rights (SDRs), which are described as a kind of "not-quite-money"
• It appears the U.S. has sent almost a billion dollars' worth of SDRs to Argentina, presumably to help it repay some IMF loans
• The use of SDRs is more limited than regular currency in terms of what can be done with them
Liquid portion of the ESF and exposure to Argentina[27:35]
• There is about $40 billion in regular currency and easily convertible assets in the ESF
• A $20 billion loan to Argentina would take a large chunk of that liquid portion

Grading the Argentina credit line using Bagehot's criteria

Lend freely: is $20 billion enough for Argentina?[27:35]
• Brad is asked to evaluate the Argentina package using the three Bagehot conditions
• On the question of lending freely, Brad thinks $20 billion is probably not enough
• He estimates $20 billion might get Argentina through the end of this year and perhaps halfway through next year
• Brad says a figure closer to $40 billion would likely qualify as enough under the "lend freely" standard
• He gives Besant a B-plus grade for the size of the package, noting it is a big sum but shy of what would fully reassure markets
Besant's additional move of buying pesos directly[28:03]
• Brad upgrades his assessment somewhat because Besant also used the ESF to buy pesos on the open market to support the currency
• It is estimated that Treasury bought more than a billion dollars' worth of pesos this way
• Brad calls this extraordinary and a little risky

Penalty rate: unknown terms and lack of transparency

Unclear whether Argentina is paying a penalty rate[28:23]
• Brad gives an "incomplete" grade on the penalty rate criterion because the financial terms of the loan have not been disclosed
• He notes it could be at a penalty rate or simply at the U.S. Treasury's cost of funds; there is no public information
• Brad finds it very unusual for such a deal to be signed without an official statement of the terms or policy conditions
• He emphasizes that the U.S. almost never gives unconditional support, making this situation extremely unique if truly unconditional
• The IMF's recent $20 billion loan to Argentina does have conditions, but Besant has not indicated any additional U.S. conditions
• The hosts say they reached out repeatedly to Treasury for the specific terms of the deal but did not receive a response

Collateral and the risk of tying up the ESF

Dependence on Millay's continued austerity and fiscal policy[30:54]
• Brad states that everything depends on whether Millay is willing to keep and even intensify his spending cuts
• He notes that Millay has already taken a chainsaw to social spending and support for the poor
• If those austerity measures are sustained, Brad suggests it might be possible to avoid a major default
• If not, Argentina could be in an even worse position next year, despite the ESF support

Brad's view on what Argentina still needs to do

Need to abandon peso support and adjust external spending[31:25]
• Brad believes there is a path out for Argentina if Millay stops propping up the peso
• He acknowledges Millay has done the hard work of balancing the budget and calls it an important and significant accomplishment
• Brad says Millay needs to complete the job by cutting some of Argentina's import spending
• The hosts liken this to a second chapter of austerity: first cutting social services and the budget, then cutting the value of the currency that buys everything
• Brad frames it as Argentina having done half of what is needed and needing to do the other half
Millay's stated unwillingness to weaken the peso[31:16]
• In a recent Financial Times interview, Millay said he was not open to a significant weakening of the peso
• He also indicated he was ready to draw on the $20 billion ESF line when needed

Implications for the ESF and future crises

Potential long-term commitment of ESF funds to Argentina[31:29]
• If Argentina draws heavily on the ESF without broader reforms, most of the ESF's cash could be committed there
• This commitment could last for years, regardless of other crises that might arise

Show closing and production credits

Request for listener support and staff acknowledgments[32:32]
• The hosts ask listeners to rate and review the show to help others find it
• They note the show was produced by Luis Gallo, edited by Eric Mennel, fact-checked by Sierra Juarez, and engineered by Sina Lofredo
• Alex Goldmark is named as Planet Money's executive producer

Lessons Learned

Actionable insights and wisdom you can apply to your business, career, and personal life.

1

Emergency financial tools are most valuable when they are flexible and can be deployed quickly, but using them irresponsibly can exhaust their capacity for future crises.

Reflection Questions:

  • • What resources or buffers do I currently have that I could deploy quickly in an emergency, and how limited are they?
  • • How might overcommitting my time, money, or energy to one project today leave me exposed if a more important challenge appears tomorrow?
  • • What specific limit or rule could I set this week to ensure I preserve some capacity for unexpected situations?
2

Bagehot's lender-of-last-resort framework-lend freely, at a penalty rate, against good collateral-shows that crisis support should be large and fast, but also temporary and disciplined.

Reflection Questions:

  • • Where in my life or work am I effectively acting as a "lender of last resort" to others, and am I applying any conditions to that support?
  • • How could adopting a "penalty rate" mindset help ensure that help I give in a crisis encourages independence instead of long-term dependency?
  • • What collateral or safeguards could I ask for the next time I extend significant help or resources to someone or some project?
3

Fixing surface-level symptoms without addressing underlying structural problems-like an overvalued currency or unsustainable promises-only postpones a deeper reckoning.

Reflection Questions:

  • • What recurring problem in my work or personal life might be a symptom of a deeper structural issue I have avoided tackling?
  • • How would my approach change if I focused first on the root cause instead of repeatedly managing the immediate fallout?
  • • What is one structural change I could start designing this month that would make a recurring problem much less likely to return?
4

Transparency and clear terms build trust in high-stakes deals; secrecy around conditions and obligations increases uncertainty for everyone involved.

Reflection Questions:

  • • Where am I currently vague about expectations or terms in my collaborations or agreements, and how could that backfire later?
  • • How might more clearly documenting the conditions of my commitments improve both trust and decision-making for everyone involved?
  • • What is one important relationship or agreement where I could clarify terms or expectations in writing this week?
5

Political and reputational risk are inseparable from big financial decisions; even a technically sound strategy can be costly if stakeholders do not understand or accept it.

Reflection Questions:

  • • What important decision am I considering where I have focused on the technical logic but not on how it will be perceived by others?
  • • How could I better communicate the rationale and risks of a controversial choice so that affected people feel informed rather than blindsided?
  • • Who are the key stakeholders I should proactively brief or involve before I commit to a high-risk, high-reward decision?

Episode Summary - Notes by Taylor

The obscure pool of money the US used to bail out Argentina
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