Milei clashes with Argentine province over plans to issue its own currency

While libertarian president Javier Milei slashes spending in Buenos Aires to tackle Argentina’s severe economic crisis, 600 miles away the northern province of La Rioja is trying a different approach: printing its own currency.

Milei’s austerity is biting hard in La Rioja, an olive and wine region home to 384,000 people — out of a population of 46mn — where intense heat pushes many businesses to take a siesta from 1 to 6pm. Almost 75 per cent of the province’s budget comes from redistributed taxes collected by the national government, and 67 per cent of registered workers are employed by the state.

The province’s finances had been “decimated” in recent months, governor Ricardo Quintela said in an interview, citing Milei’s halting of public works projects and his refusal to transfer the 20.8bn pesos ($26mn) that he says La Rioja is owed based on historical agreements with the central government.

“We only have enough funds to hold out for four or five months if the government doesn’t transfer what they owe,” he said.

Ricardo Quintela the governor of La Rioja
Ricardo Quintela the governor of La Rioja

In an effort to pay public workers, La Rioja’s state legislature, dominated by Quintela’s left-leaning Peronist movement, has approved a plan to issue 22.5bn pesos ($28mn) worth of so-called “bocades”. These provincial government bonds can be used to pay local taxes, bills for public services such as energy and water and — in theory — to buy goods from private companies.

Bocades — nicknamed a “quasi-currency” in Argentina — will be used to top up public employees’ salaries by 30 per cent. Quintela said they would start to be issued within 90 days, though La Rioja may opt to issue them only digitally.

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Quintela said that Bocades would be exchangeable for pesos at the provincially-owned bank. However, given the province’s scarce supply of pesos, the plan relies on “people starting to trust in the bonds’ value” so that they don’t exchange them immediately.

“Once the bond starts to circulate, it will give us some room to breathe and an injection into our economic system,” he said.

Line chart showing Inflation is above 200% in Argentina while the interest rate is 100%

Economists have widely panned La Rioja’s plan, saying it was unlikely to win enough trust from residents to work as Quintela envisioned and that printing money could prove dangerous given Argentina’s 211 per cent annual inflation rate.

“This is not a good idea,” said Guido Sandleris, a professor at Johns Hopkins University SAIS Europe and Buenos Aires’ Torcuado di Tella University, and adviser at the Cordoba Chamber of Commerce. “It generates more monetary chaos in an economy already grappling with high inflation.”

Quintela’s gambit is the boldest challenge yet by any of Argentina’s 23 governors to Milei’s austerity agenda. A fierce conflict with provincial leaders is playing out in Argentina’s congress, where Milei’s La Libertad Avanza coalition holds fewer than 15 per cent of lower house seats and lawmakers are often heavily influenced by governors. 

Milei was last week forced to retreat on a set of spending cuts and tax rises central to his plan to balance the budget in 2024 after opposition parties blocked them. He has threatened to make cuts to funding for the provinces instead.

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GM030220_24X Argentina map_v2

On Wednesday, his interior minister sent a letter to La Rioja’s government warning that issuing its own currency was illegal and could endanger future funding for the province.

Argentina’s provinces have dabbled in quasi-currencies before. In the early 2000s, amid a severe recession and several years of deflation, more than a dozen provinces including La Rioja issued bonds that functioned as currencies.

La Rioja bondholders faced long queues and peso shortages when they tried to exchange at the provincial bank, said Carlos Laciar, head of SITRAPP, a union representing about 4,000 provincial workers.

“Black market money changers would only give you 70 pesos for 100 bocades, but you were so desperate you had to accept it,” he said. “It’s the workers who lose here.”

Line chart of Pesos per $ showing Argentina’s peso has plummeted in value over the past two years

Many provincial quasi-currencies were eventually bought back by the national government. Milei has ruled out a similar rescue operation for La Rioja, leaving the fate of bondholders uncertain in a scenario where the province is unable to meet its obligations.

Laciar argued that the solution to La Rioja’s funding woes was to cut thousands of non-permanent public employees “who are always hired around election times for political reasons”.

Quintela denied that the province had hired public employees for political reasons, and ruled out firing workers. “We all aspire to have fiscal balance,” he said, “But we think that has to be a gradual process. The speed of [Milei’s] austerity has been violent, cruel.”

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Many business owners in La Rioja, which backed Milei over his Peronist rival at November’s run-off election by an 8 point margin, said they would be reluctant to accept bocades, but that the high proportion of public workers in La Rioja workers may force them to do so.

“If I start to lose business, I’ll have to accept them — at half their face value,” said Franco, a bakery owner who declined to give his last name.

Javier Milei, Argentina’s president
Javier Milei’s austerity cuts have hit hard in the regions © Agustin Marcarian/Reuters

La Rioja’s currency will have minimal impact on Milei’s national push to balance the budget and control inflation, said Jorge Vasconcelos, vice-president of think-tank IERAL — unless other provinces follow suit. So far none have indicated that they will.

But he warned that if the government did not find a way to reverse recent cuts to provinces’ funding, this could change: “Without a solution, it becomes easier to imagine provinces considering these measures, which are obviously short term, and don’t solve anything, but aim to alleviate very critical situations.”

Several of La Rioja’s older labour unions, closely aligned with the Peronist movement, have voiced support for the bocades, saying “any increase in workers’ salaries is important” when they have been rapidly eroded by inflation.

But some public employees disapproved. Miguel Costantino, a member of a teachers’ union, said that, although he was “completely against Milei’s ideas”, issuing a new currency was not a viable alternative. “It’s like being paid in monopoly money.”