Argentina has reached a historic peak in imports of consumer goods, despite local manufacturers claiming they are “blowing out” inventory to manage operating expenses. This situation unfolds amid a decline in household purchasing power, as families find themselves increasingly unable to keep up with their debts. The government remains steadfast in its strategy, despite the absence of the anticipated US$20 billion loan from U.S. banks, and is making efforts to stabilize the dollar. In the interim, there is apprehension in the markets regarding the resurgence of “libertarian Milei.” The evolving landscape and the inconsistencies presented by Economy Minister Luis Caputo are contributing to the prevailing unease. “Strap in,” President Javier Milei remarked during a speech. The situation serves as a metaphor for a persistent crisis within the productive sector. An industry representative informed that the sector is currently on alert due to a decline in activity resulting in “high levels of uncollectible debt” and a disintegration of the market. “We must liquidate inventory to manage our daily operational costs,” stated the industry leader.
Simultaneously, imports of consumer goods continue to rise. Research indicates that they reached a peak of US$1.19 billion this year, propelled by a 59% increase in quantities, even as prices experienced a 7% decline. The prevailing indicators point towards a future characterized by domestic manufacturers facing a market limited by subdued consumption, alongside an increase in supply driven by trade liberalization and favorable exchange-rate dynamics. In 2024, the government is relying on the resurgence of demand facilitated by the reintroduction of credit. However, this time appears more challenging: Data from the Central Bank indicate that household loan arrears reached unprecedented levels in September, with personal loans at 9% and credit cards at 7%.
The resurgence of ‘libertarian Milei’ could also apply to the financial sector, which regards with some skepticism the strategy of maintaining exchange-rate bands, even though U.S. banks have already dismissed the possibility of a US$20 billion loan that would have been utilized 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 remarked. On Friday, which was a market holiday in Argentina, bonds experienced widespread declines in response to the news. In the revised context, lacking assurances, global financial institutions would extend a repo of approximately US$5 billion to address January obligations. Concerns regarding the monetary program continue to linger. The International Monetary Fund and prominent credit rating agencies are urging Argentina to bolster its reserves in order to enhance its credit rating. Within the government, contradictions are prevalent, and clarity on achieving the delicate balance remains elusive: remonetizing the economy, further dismantling capital controls, acquiring reserves, and sustaining the bands.
In the last fortnight, the dollar has remained significantly beneath the upper threshold of the band. However, there is an exceptional influx of foreign currency resulting from corporate placements overseas, which has already exceeded US$3.6 billion in November. Additionally, Buenos Aires City conducted a US$600 million issuance on Tuesday, with other provinces poised to replicate this action. Anticipations regarding the potential reopening of international markets for Argentina have not alleviated existing uncertainties. A prominent macro and financial consultant expressed concerns regarding the resurgence of “Milei the libertarian,” the economist who posits that accumulating reserves is not essential for maintaining a historically low exchange rate. The communication from the economic team is proving to be unhelpful as well. The situation contributes to a deficiency in the economic team’s communication: ambiguity regarding the U.S.’s involvement in the domestic foreign-exchange market, the management of the swap line, and most importantly, the prospects of the economic program. As a noted consultant remarked: “If the band system is convincing, why does Caputo have to come out and defend it every week?”