U.S. President Trump indicated that America's planned $20 billion financial assistance to Argentina may depend on whether liberal leader Javier Milei succeeds in the midterm elections, triggering fresh tensions in currency markets.

"If he wins, we'll continue supporting him; if he doesn't win, we'll withdraw," Trump told reporters on Tuesday, adding that both governments also plan to discuss a potential free trade agreement.

Short-term peso rates surged back to triple digits as the U.S. and Argentina refrained from intervening in currency markets for the second consecutive trading day. Argentine bonds fell across the board, giving back earlier gains.

Although Trump has dismissed claims in other contexts that U.S. aid is politically designed to prop up Milei, he has repeatedly emphasized that the $20 billion currency swap agreement aimed at supporting the Argentine peso and stabilizing the country's financial markets is intended to express support for the Argentine leader's economic philosophy.

"We want to help Argentina," Trump said, advocating for boosting the country's economy through trade. "They have great products, we used to trade a lot in the past."

Less than two weeks remain until the crucial midterm elections that will determine the future of Milei's reform efforts. The libertarian economist-turned-Argentine president, who once wielded a chainsaw advocating for government spending cuts and a series of austerity measures, has seen these policies prove unpopular with voters, leading to rising disapproval ratings.

Meanwhile, the extraordinary financial assistance from the U.S. has done little to boost Milei's approval ratings among voters. If his Liberty Party receives 35% to 40% of votes in the October 26 congressional elections, investors would view this as a victory. However, any result below 30% could trigger massive sell-offs.

"Linking U.S. government support so explicitly to Milei's electoral victory could actually create a political backlash for the Liberty Party's campaign," said Ramiro Blazquez, a strategist at StoneX in Buenos Aires, via email.

According to Bloomberg-compiled indicative pricing data, the country's dollar bonds maturing in 2035 fell 2.4 cents to about 57 cents. This marked the largest decline since September 30.

The absence of government intervention in currency markets by both countries also affected trading. Overnight peso repurchase rates soared from Monday's 77.5% to 115%. The Argentine peso spot rate fell nearly 1% on Tuesday to 1,360 pesos per dollar, with peso futures also declining.

Although this month's voting will renew nearly half of congressional seats, Argentina's next presidential election is in 2027. Milei's spokesperson views the upcoming vote as a turning point for the nation.

U.S. Treasury Secretary Bessent stated that "this assistance is based on sound policies, and a return to failed Peronist policies would lead the U.S. to reconsider."

Trump was also asked whether Milei should achieve dollarization of Argentina's economy, as he promised during his 2023 campaign. Trump deferred the question to Bessent, who said the U.S. is "very satisfied with current monetary arrangements."

Since April, as part of an agreement with the International Monetary Fund, Argentina has allowed the peso to float within a certain range. However, authorities have intervened multiple times within that range.

Before the U.S. Treasury's direct peso purchases last week, Argentine authorities' efforts to stem the local currency's decline had been unsuccessful. Argentine Economy Minister Luis Caputo said in an interview with local television on Sunday that Washington is willing to continue purchasing pesos and bonds.

Milei's deregulation chief Federico Sturzenegger said at the Bloomberg Global Regulatory Forum on Tuesday that Argentina "will soon move to a floating exchange rate system." He later clarified that the trading band would "expand over time, eventually allowing transition to a floating exchange rate system."

It remains unclear how much money the U.S. has committed to Argentina's foreign exchange market, with more details of the financial assistance program yet to be announced. Neither the White House nor the Treasury Department immediately responded to requests for comment.

Trump has given broad support to Milei's economic approach, saying his counterpart is "on the verge of tremendous economic success" in this crisis-prone country with a history of sovereign debt defaults.

"This is a very significant election being watched by the world because he's doing great. But there are some growing pains that come with it, they're really going through some growing pains and now they're coming out of it. I think victory is very important," Trump said.

The financial assistance program announced by Bessent last week represents an extraordinary U.S. intervention in foreign markets—critics say this contradicts Trump's "America First" agenda and endangers taxpayer money. Some Democrats have accused the arrangement of being politically motivated, designed to support a leader viewed as Trump's ideological ally, and questioned the influence of potential beneficiaries, including hedge funds and asset management companies suspected of lobbying for this deal.

Nevertheless, supporters view the currency swap as a measure to buy time for Argentine stability and Milei's reforms. Bessent has also defended the deal, stating that a strong, stable Argentina serves U.S. strategic interests.