Argentine Industry Calls for Faster Rate Cuts as Bonus Payments Trigger Financial Strain
Buenos Aires – Argentine business leaders are urgently calling for an accelerated reduction in interest rates, citing crippling financing costs that hinder industrial growth, while concerns mount over the ability of both public and private sectors to meet year-end bonus payments. The situation highlights a delicate economic balancing act for President Javier Milei as he navigates inflation, currency stability, and economic activity.
Tomás Karagozian, CEO of textile company TN & Platex and a prominent voice within the Industrial Movement, underscored the disparity in access to capital. “If you are in a country were access to credit is four or five points of GDP and you compete with a country like Brazil that has 70% of the product for the private sector, it is very tough,” he stated. Karagozian emphasized the need for ”long-term loans at reasonable rates,” adding, “To pay the fees that were charged this year, you have to sell drugs; It’s absolutely unachievable.”
The demand for pesos is intensifying as the year-end approaches, driven by seasonal spending related to festivals, vacations, and the annual bonus payments. Central Bank Vice President Vladimir Werning has indicated the bank will purchase dollars without sterilizing pesos, contingent on economic recovery justifying the move – a potential signal of easing monetary policy.
Though, despite recent rate declines from high levels, the financial pressure is widespread. Warning signs are appearing regarding bonus payments not onyl within the corporate sector but also at various levels of government. At least six municipalities in Buenos Aires province have declared a state of economic emergency, with numerous others privately acknowledging difficulties meeting their financial obligations.Provincial administrations, including Río Negro, are exploring option financing options, with Río Negro planning to issue bills totaling between $40,000 million and $50,000 million.
The financial strain stems from a decline in sales for companies and a corresponding drop in revenue for subnational governments. Further exacerbating the issue, the national government reportedly owes funds to the provinces and appears hesitant to release them.
To address the immediate cash flow crunch, some public and private banks are offering six-month financing lines for bonus payments, but at significant costs. Interest rates on these lines range from 35% to 50% annually, exceeding the projected inflation rate of 20.8% for the next twelve months, as estimated by the Survey of Market Expectations (REM).
while credit availability in 2024 helped mitigate the impact of spending adjustments, President Milei now faces a complex challenge in managing the interplay between the dollar exchange rate, interest rates, inflation, and economic activity. Analysts suggest this will be a defining test for his administration in 2026.
