\t\t\t\t\t \t\t\t\t\t \t\t\t\t\t The government of Argentina has allowed companies that do not generate export revenues to take out loans in dollars.\u00a0<\/p>\n
The goal is to take advantage of funds in United States currency that have recently flowed into the banking system, mainly as a result of government measures encouraging Argentines to bring their stashed dollar savings into the formal economy.<\/p>\n
To make that possible, President Javier Milei amended a regulation that had been in place since the 2001 crisis, which restricted access to dollar-denominated credit to companies able to demonstrate income in that currency.\u00a0<\/p>\n
The rule was intended to prevent borrowers from assuming foreign-currency liabilities without a natural hedge against exchange-rate risk.<\/p>\n
It was created to avoid another collapse of the Argentine banking system, like the one that took place 25 years ago, sparking one of the worst economic and political crises in the country\u2019s history.<\/p>\n
However, the new regulation comes with a caveat: to qualify for these loans, companies must provide the backing of an export company as collateral. In the 1990s, this benefit was available to all companies.\u00a0<\/p>\n
Until this provision took effect on June 12, the regulations required banks to verify that applicants for dollar-denominated loans had future revenue in that currency and corresponding sales during the previous year.\u00a0<\/p>\n
This requirement excluded most companies that operate solely in the domestic market.<\/p>\n
Putting dollars to work Iv\u00e1n Cachanosky, chief economist at the right-wing think tank Fundaci\u00f3n Libertad y Progreso, told the Herald that the measure\u2019s goal of channeling idle liquidity into productive credit is a \u201cstep in the right direction.\u201d\u00a0<\/p>\n
For economist Christian Buteler, the initiative was not something businesses were necessarily asking for, but rather an idea from the government itself to promote a type of credit with lower interest rates than those offered in pesos.<\/p>\n
\u201cDollar deposits have grown significantly in the financial system, and there is nowhere to channel them,\u201d Buteler said.<\/p>\n
Private-sector dollar deposits exceed US$39 billion, their highest level since the peg between the Argentine peso and the dollar, known as \u201cconvertibilidad,\u201d which lasted for over a decade, ended in January 2002.\u00a0<\/p>\n
Loans in dollars, meanwhile, total about US$23.5 billion and are also at record levels.<\/p>\n
Increased risk\u00a0 Credit rating agency Moody\u2019s warned that, while the measure may help channel more dollars into the economy, the scheme will need to prove its soundness amid greater exchange rate volatility.<\/p>\n
\u201cThe primary borrower without foreign-currency income is exposed to a deterioration in its repayment capacity in the face of adverse exchange-rate movements, and the credit quality of the transaction becomes dependent on the financial strength of the guarantor exporter,\u201d it explained in its report on the matter.\u00a0<\/p>\n
Cachanosky said the effectiveness of the measure will depend largely on the quality of the collateral required by banks, arguing that strong guarantees are essential to prevent risks from spilling over into the financial system.\u00a0<\/p>\n
Without them, he warned, the impact is likely to be limited, particularly given the small size of Argentina\u2019s credit market.<\/p>\n
\u201cIt is a sensible measure for deepening financial intermediation and is consistent with the objective of making better use of the dollars already in the system,\u201d he said. \u201cBut it requires very strong guarantees.\u201d<\/p>\n
He added that the main concern is not the regulatory change itself, but the possibility that lending standards could weaken over time.<\/p>\n
\u201cThe risk is not the regulation, but that banks become less disciplined in assessing who they lend to,\u201d he said.<\/p>\n
Ghosts of the 2001 crisis The decision stirs emotions that go beyond purely economic considerations. The 2001 crisis, which was caused because dollar-denominated loans were 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.\u00a0<\/p>\n
During Carlos Menem\u2019s presidency in the early 1990s, Argentina maintained a fixed exchange rate between the dollar and the Argentine peso known as \u201cconvertibilidad,\u201d\u00a0or convertibility. <\/p>\n
Although it proved effective in controlling prices \u2014 Argentina had just emerged from a period of hyperinflation in the late 1980s \u2014 the system began to falter following Mexico\u2019s \u201cTequila Effect\u201d crisis in 1995 and Brazil\u2019s \u201cCaipirinha Effect\u201d crisis in 1997.<\/p>\n
To remain viable, convertibility required a constant flow of dollars to meet local demand.<\/p>\n
But as the decade progressed, that inflow of foreign currency slowed because Argentina became increasingly expensive in dollar terms compared to its neighbors, who had devalued their currencies to cope with the international financial crisis, and less attractive to investors.\u00a0<\/p>\n
As a result, Argentina stopped receiving foreign investment and had to make up for those dollars with debt from multilateral lending institutions, like the International Monetary Fund (IMF) and the World Bank, while also resorting to increasingly unpopular austerity measures.\u00a0<\/p>\n
By late 2001, during the presidency of Fernando de la R\u00faa, public discontent had reached a breaking point. At the same time, growing fears that the peso\u2019s one-to-one peg to the U.S. dollar would collapse triggered a run on bank deposits.<\/p>\n
Against that backdrop, the government imposed the so-called \u201ccorralito\u201d in December 2001, limiting cash withdrawals from bank accounts to 250 pesos per week.\u00a0<\/p>\n
The measure was followed by a new development that became known as \u201ccorral\u00f3n.\u201d 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.<\/p>\n
Should we be worried? Jorge Carrera, an economist and former Central Bank director during the presidency of Alberto Fern\u00e1ndez, told the Herald that the Milei administration\u2019s decision does increase risks to the banking system, but only marginally.<\/p>\n
\u201cIt is a fairly moderate measure,\u201d he said, noting that requiring an exporting company to act as guarantor is \u201cfar better\u201d than the framework that prevailed in the 1990s.<\/p>\n
Carrera argued that one of the key lessons of the convertibility collapse was the danger posed by currency mismatches.\u00a0<\/p>\n
\u201cWhen the major devaluation came at the end of convertibility, the entire financial system was left in disarray,\u201d he said. \u201cBorrowers could no longer repay their loans, and because those loans were not being repaid, banks could not return depositors\u2019 dollars.\u201d<\/p>\n
Economist Buteler said the government ultimately appears to be aiming for a system similar to that of the 1990s, in which loans were widely available in either pesos or dollars \u2014 a framework he described as \u201cnormal in a bimonetary economy.\u201d<\/p>\n
\u201cThe problem is that it carries the same risk we saw in 2001: a currency mismatch after a sharp depreciation,\u201d he said. In such a scenario, borrowers earning pesos could see the real burden of their dollar-denominated debts surge as the exchange rate rises.<\/p>\n
Still, Buteler argued that the risk is lower today because Argentina no longer operates under a fixed exchange-rate regime. \u201cThe exchange rate now fluctuates,\u201d he said. \u201cThat does not mean there won\u2019t be movements, but they are unlikely to be on the scale seen at the end of convertibility.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
The government of Argentina has allowed companies that do not generate export revenues to take out loans in dollars.\u00a0 The goal is to take advantage of funds in United States currency that have recently flowed into the banking system, mainly as a result of government measures encouraging Argentines to bring their stashed dollar savings into […]<\/p>\n","protected":false},"author":261,"featured_media":82597,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21345,21346,62,42,20355],"tags":[21342,21343,95,96,21344],"class_list":["post-82596","post","type-post","status-publish","format-standard","has-post-thumbnail","category-2001-crisis","category-argentine-central-bank","category-dollar-peso","category-economics","category-us-dollar","tag-2001-crisis","tag-argentine-central-bank","tag-dollar-peso","tag-economics","tag-us-dollar"],"_links":{"self":[{"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/posts\/82596","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/users\/261"}],"replies":[{"embeddable":true,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/comments?post=82596"}],"version-history":[{"count":0,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/posts\/82596\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/media\/82597"}],"wp:attachment":[{"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/media?parent=82596"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/categories?post=82596"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/service.codeus.ca\/index.php\/wp-json\/wp\/v2\/tags?post=82596"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}