Three years into Javier Milei’s presidency, a significant portion of the Argentine economy continues to lag behind the levels of activity and consumption observed prior to his arrival at the Casa Rosada, a situation that appears to be causing concern within the economic team. Even so, the government has consistently rejected the notion of the Central Bank engaging in money printing to boost demand — even to aid the thousands of households in default — a practice derogatorily referred to in Argentine political discourse as aplan 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 stated in a interview in early August regarding the possibility of a plan platita, reaffirming his commitment to maintaining fiscal and monetary discipline to fulfilll his promise of zero inflation. Nonetheless, apprehension regarding the decline in formal employment and the real economy remains, fuelled by subdued demand. This week, official data from SIPA (the Integrated Argentine Pension System) revealed that May marked the thirteenth consecutive month of decline in registered private-sector employment. In that month, a total of 6,971 workers experienced job loss. In comparison to November 2023, which reflects the situation inherited from the previous administration, there exists a deficit of 337,365 registered wage earners. Commerce and industry experienced the most significant impact among the sectors.
They represent the two largest employers in Argentina, comprising 30.1% of total employment, as per official INDEC data. That concern has started to manifest in the polling data. According to a recent survey by the public opinion research firm AtlasIntel, unemployment was identified as Argentina’s second-most pressing issue, at 46.5%, following closely behind corruption, which stood at 47.7%. That same survey indicated that disapproval of the government’s performance was at 62.4%, marking its second-worst reading, only exceeded by the 63% recorded in April. In light of current circumstances, the Economy Ministry has declared that it will permit dollar loans to all companies, regardless of their export status, thereby relaxing a regulation that has been in effect since the crisis of 2001-2002. The broking Max Capital stated that, by relaxing the regulations on dollar loans, the government “is reacting to relatively stagnant activity” outside of agriculture, energy, and mining — sectors that represent 13% of activity but only 6.6% of the labour market, based on 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 reported a decline in industrial output of 7%. Industrial capacity utilisation is presently at 59.1%.
Construction has experienced a more severe impact. Since Milei took office, activity has decreased by 20%, as reported by 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 addressed the matter in radio comments last Friday, asserting that the initiative “is going to generate more activity in the real economy,” particularly within the construction sector. “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 indicated that the measure signifies “a potential increase in credit of more than 1%” of GDP, which is expected to materialise in the forthcoming years. Despite the growth potential, Max Capital stated, “higher electoral risks will probably reduce the appeal of dollar financing for many companies” next year. The broking Portfolio Personal Inversores elucidated that, in an environment characterised by dollar stability, the disparity in interest rates between peso and dollar loans “can encourage companies” to seek financing in U.S. dollars, where the rates are comparatively lower.
In a scenario characterised by heightened volatility, such as the 2027 presidential election, they contended that the incentives might operate in an opposing manner. “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, precipitated by dollar-denominated loans extended to borrowers lacking dollar income or sufficient guarantees, constituted an economic, political, and social catastrophe that indelibly affected a generation of Argentines. Analysts indicated that the perceived risks associated with a mismatch between the peso and the dollar “are widely overestimated locally,” particularly in a context where the repercussions of the collapse of convertibility remain fresh in memory. 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.”
Historically, Argentina upheld a fixed exchange rate between the dollar and the Argentine peso, referred to 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 corralón. In summary, this resulted in the compulsory conversion of dollar-denominated deposits into pesos at an exchange rate significantly lower than the market value following the breakdown of the convertibility regime in January 2002, causing substantial losses for 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.” And “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.
