Strap in: Imports surge and markets fear return of libertarian Milei

Argentina’s imports of consumer goods have broken an all-time record, even as local manufacturers insist they are “blowing out” inventory to cover operating costs. All of this is playing out against a backdrop of shrinking household purchasing power, with families increasingly falling behind on their debts.  The government is clinging to its plan, even without the promised US$20 billion loan from U.S. banks, and trying to keep the dollar in check. Meanwhile, markets fear the return of “libertarian Milei.” The shift in the landscape and the contradictions of Economy Minister Luis Caputo are adding to the jitters. “Strap in,” President Javier Milei said during a speech at Corporación América last week. It was a metaphor for a crisis in the productive sector that appears here to stay. One industry representative told the Herald’s sister title, Ámbito, that the sector is on alert amid a drop in activity that’s leading to “high levels of uncollectible debt” and a breakdown in the market. “We have to blow out inventory to cover day-to-day expenses,” said the industry leader, who also owns a factory in Greater Buenos Aires.  Meanwhile, consumer goods imports keep climbing. According to research by economist Martín Polo, they hit a peak of US$1.19 billion this year, driven by a 59% jump in quantities despite a 7% drop in prices. Everything suggests this will be the outlook for domestic manufacturers going forward: a market constrained by weak consumption and expanded supply due to trade liberalization and exchange-rate advantages. As in 2024, the government is banking on reviving demand through the return of credit. But this time looks tougher: Central Bank data show that household loan arrears hit an all-time high in September, reaching 9% for personal loans and 7% for credit cards. The return of ‘libertarian Milei’ The president’s metaphor could also apply to the financial sector, which views with some skepticism the strategy of maintaining exchange-rate bands even though U.S. banks have already shot down the possibility of a US$20 billion loan that would have been used for a government debt-buyback program. “Bond prices already had that rescue package priced in, as well as free access to the swap line,” a market trader said. On Friday (a market holiday in Argentina) bonds reacted to the news with broad declines. Under the new scenario, and in the absence of guarantees, international banks would grant a repo of roughly US$5 billion to cover January maturities. Doubts about the monetary program persist. The IMF and major ratings agencies are calling on Argentina to build reserves to improve its grade. Inside the government, contradictions abound and no one can offer clarity on how to pull off the alchemy: remonetize the economy, continue dismantling capital controls, buy reserves, and maintain the bands. Over the past two weeks, the dollar has stayed well below the upper limit of the band, but there is an extraordinary supply of foreign currency coming from corporate placements abroad, which already topped US$3.6 billion in November. Added to that was a US$600 million issuance by Buenos Aires City on Tuesday, with other provinces preparing to follow suit. Expectations that international markets might reopen for Argentina have not cleared the doubts. A well-known macro and financial consultant said he fears the return of “Milei the libertarian,” the economist who believes it isn’t necessary to accumulate reserves to keep the exchange rate low in historical terms. Communication from the economic team isn’t helping, either. The latest episode involved accusing the Wall Street Journal of mounting an “operation” after it reported information that both U.S. Treasury Secretary Scott Bessent and Caputo himself had put on the table back on October 15: a US$20 billion credit line with private banks. It adds to a lack of clarity in the economic team’s messaging: opacity around the U.S.’s intervention in the local foreign-exchange market, the handling of the swap line, and above all the future of the economic program. As one respected consultant put it: “If the band system is convincing, why does Caputo have to come out and defend it every week?” Originally published on Ámbito