Government eases dollar-loan rules to jump-start the real economy

Three years into Javier Milei’s presidency, a large part of the Argentine economy still hasn’t recovered the levels of activity and consumption it had before he reached the Casa Rosada, and that seems to be worrying the economic team. Even so, the government has repeatedly dismissed the possibility of the Central Bank printing money to stimulate demand even to rescue the thousands of households in default something known pejoratively in Argentine political culture as a plan platita, or “little cash plan.” “I’m not going to hand over my reputation and my historic legacy by pulling the same outrageous stunt Kirchnerism did,” Milei said in a television interview in early August about the possibility of a plan platita, reaffirming that he will maintain fiscal and monetary discipline to deliver on his promise of zero inflation. Still, concern over the drop in formal employment and the real economy persists, driven by weak demand. This week, official data from SIPA (the Integrated Argentine Pension System) showed that May was the thirteenth straight month of decline in registered private-sector employment. That month, 6,971 workers lost their jobs. Compared with November 2023 that is, with what the previous administration left behind there are 337,365 fewer registered wage earners. Commerce and industry were the hardest-hit sectors. They are the two biggest employers in Argentina, accounting for 30.1% of total employment, according to official INDEC data. That concern has begun to show up in the polls. According to a recent survey by the public opinion research firm AtlasIntel, unemployment ranked as Argentina’s second-biggest problem (46.5%), trailing only corruption (47.7%). That same survey found that disapproval of the government’s performance stood at 62.4%, its second-worst reading, surpassed only by the 63% recorded in April. Against this backdrop, the Economy Ministry announced it will allow dollar loans to any company, whether it exports or not easing a rule in place since the 2001-2002 crisis. The goal: boost demand The brokerage Max Capital said that, by easing the rules on dollar loans, the government “is reacting to relatively stagnant activity” outside agriculture, energy and mining sectors that account for 13% of activity but just 6.6% of the labor market, according to its estimates. “The government hopes this new measure will provide cheaper financing to two sectors that sit significantly below their 2023 levels: construction and industrial production,” it stressed. Between November 2023 and June 2026, INDEC said industrial output fell by 7%. Industrial capacity utilization currently stands at 59.1%. Construction has been hit worse. Since Milei took office, activity has fallen 20%, according to INDEC data. “These sectors employ almost 25% of formal private-sector workers and have remained stagnant or lagging, hurt by competition and by higher costs in dollars,” Max Capital explained in a report. Finance Secretary Federico Furiase touched on the issue in radio remarks last Friday, saying the initiative “is going to generate more activity in the real economy,” mainly in construction. “Real estate developers will clearly qualify for this kind of dollar loan for legal entities, and that’s a way to generate credit for the supply of construction and for mortgage lending.” The brokerage’s analysts said the measure represents “a potential increase in credit of more than 1%” of GDP, which should materialize over the coming years. Doubts about 2027 and the ghost of 2001 Despite the growth potential, Max Capital said “higher electoral risks will probably reduce the appeal of dollar financing for many companies” next year. The brokerage Portfolio Personal Inversores (PPI) explained that, in a context of dollar stability, the gap in interest rates between peso and dollar loans “can encourage companies” to borrow in U.S. dollars, where rates would be lower. In a scenario of greater volatility, howeversuch as the 2027 presidential electionthey argued the incentives could work the other way around. “Some companies might choose to pay off their dollar obligations and shift to peso financing, which would create additional demand for foreign currency,” since companies would rather buy dollars than take on debt in them. The decision stirs emotions that go beyond purely economic considerations. The 2001 crisis, caused by dollar-denominated loans handed out to borrowers without dollar income or adequate guarantees, was an economic, political, and social debacle that left its mark on a generation of Argentines. Max Capital’s analysts said the risks of a mismatch between the peso and the dollar “are widely overestimated locally,” where the fallout from the collapse of convertibility is still remembered. They explained that the current situation is different from that era: “This time, the exchange rate floats, and borrowers are much more aware of the risks of a potential mismatch, and have internalized them.” Back then, Argentina maintained a fixed exchange rate between the dollar and the Argentine peso known as convertibilidad, or convertibility. When it collapsed in late 2001, the government imposed the so-called corralito in December 2001, limiting cash withdrawals from bank accounts to 250 pesos per week. At that moment, the corralito was followed by a new development that became known as the corraln. In short, this meant that dollar-denominated deposits were forcibly converted into pesos at an exchange rate well below market value after the collapse of the convertibility regime in January 2002, inflicting heavy losses on savers. PPI also sees no significant mismatch risk: “The current regulatory framework is substantially different from the one in place before 2001-02, and it significantly limits the system’s exchange-rate exposure.” “We see it as a factor to monitor during the election year, but not a risk comparable to the episodes of the past,” they added.