Milei Sufoca Argentines generating default and corporate defaults

The tax shock policy promoted by Javier Milei – marked by aggressive cuts in public spending, end of subsidies and foreign exchange liberalization – begins to show what the financial market considers “its most serious side effects”: a growing wave of default on the financial system and multiplication of defaults between companies.

According to data from the Central Bank of Argentina compiled by Bloomberg, the charges with undeniable debts reached the highest level in five years, compared to the total of bank assets. In March, credit card default reached 2.8%, the highest rate since 2021, while personal loans were rising to 4.1%, worse level in nine months.

Families, pressured by stagnant wages and inflation still around 50% per year, struggle to keep their finances up to date. In April, there were more than 64,000 checks returned due to lack of funds, more since the pandemic, with a rejection rate of 1.3% – almost double the average of the United States last year.

Fragile companies: collapse of credit and retraction of consumption

In the corporate sector, the situation also gets worse. Industries, retailers, builders and exporters are being doubly hit: the retraction of domestic consumption and the loss of access to the capital market, which was previously profitable due to currency controls. Now, with the end of restrictions, local investors prefer to dolarize their portfolios, and companies face more difficulties in raising funds.

This scenario led to a series of emblematic defaults. Albanesi SA, from the energy sector, stopped paying $ 19.5 million in interest in a title issued only six months ago. Argentine celulosa warned to the risk of Default, while San Miguel Agii, from the citrus sector, annulled its last debt issuance. Petrolera Aconcagua Energía SA, who tried to capture $ 250 million abroad, faced low demand.

These episodes are not limited to a specific sector, but show a growing systemic fragility. Companies that previously profited with currency arbitration and subsidized financing now face high interest rates and compressed margins. Some, such as Los Grobo, Agrofin and Red Surk group, accumulate estimated default on hundreds of millions of dollars.

Cautious investors and increasing default raise political risk

With the approach of October legislative elections, the escalation of default becomes a worrying indicator for the political stability of the Milei government. The reaction of the ballot box will serve as a thermometer of popular acceptance to austerity policies. So far, the strategy has been clear: stabilizing inflation at any cost, even with real salaries in falling and economic retraction.

“It’s a yellow light. Credit collection is getting harder,” warns Gastón Rossi, director of Banco Ciudad de Buenos Aires, to Infobae. “The government chose to combat inflation quickly, even though it was knowing that it would bring income stagnation and greater social risk.”

Moody’s agency, attentive to the deterioration of the corporate environment, recently downgraded the grade of Argentina Cellular, citing the weight appreciation and the loss of competitiveness of exports. The diagnosis is clear: The credit crisis has already surpassed the financial sphere and contaminates the entire production chain.

Milei’s dilemma: stabilize or stimulate?

The Milei government now faces a dilemma that goes beyond tax orthodoxy. To persist in adjusting or giving the economy breath with some selective stimulus? Time plays against: the electorate impoverishes and political support can evaporate.

The current strategy – abrupt deregulation, exchange shock, widespread cuts – has brought some relief in inflation rates, but at the expense of increasingly unlikely growth and a toxic indebted spiral.

In the midst of this scenario, Argentina walks to October with plebiscite air: either ratifies Milei’s booklet, or imposes a political brake on its agenda. Meanwhile, families and companies are already in their pocket the weight of the ultra -liberal prescription – and the country once again balances the Ravalha wire.