Loans in dollars: warning of a risk of shoelessness

The Argentine government announced on Friday through Decree 736/2026 the relaxation of dollar-denominated credit access for non-currency-generating businesses. The policy was previously outlined by Economy Minister Luis Caputo. This move allows financial institutions to extend dollar loans to companies that typically operate in pesos, marking a shift in monetary strategy aimed at channeling foreign currency liquidity into productive investment and boosting economic activity. Caputo expressed confidence that the exchange rate market will remain stable by 2027, the year of national elections. The decision has sparked warnings from economists across ideological lines. Hernán Lacunza, former Finance Minister and current economist, cautioned against repeating past mistakes. He referenced the late 1990s, when similar measures led to asymmetric pesoification, resulting in severe economic turmoil. Lacunza emphasized that a sudden rise in the dollar could trigger a repeat of the 2001 crisis, warning that such instability could emerge unexpectedly due to miscalculations in debt repayment. Guido Sandleris, former head of the Central Bank, criticized the measure as undermining one of Argentina’s few remaining economic consensus points, the strict regulation of dollar-based banking. He pointed out that this regulatory framework helped the country navigate multiple exchange crises since 2001 without experiencing a banking collapse. Sandleris stressed that this outcome was not coincidental but the result of painful lessons learned over time. Roberto Cachanosky, another prominent economist, voiced concerns about the requirement for borrowers to sell dollars in the MULC (Monetary Union Liquidity Center). He argued that this provision encourages private enterprises to take dollar loans solely to sell them in the foreign exchange market, effectively using public savings to maintain an artificial currency gap. Cachanosky warned that when the exchange rate stabilizes after years of misalignment, these firms may struggle to repay their debts, potentially leaving savers with losses as their deposits are funneled into risky ventures. The policy has been welcomed by the financial system, which sees it as a step toward greater flexibility in accessing international capital. However, critics argue that the lack of safeguards increases systemic risk. They highlight historical precedents where similar policies led to unsustainable debt burdens and eventual financial collapses. The debate reflects broader tensions within Argentina’s economic policymaking, balancing immediate growth incentives with long-term stability. As the policy takes effect, its impact will depend on how quickly the exchange rate adjusts and whether the economy can absorb the increased exposure to dollar fluctuations. Analysts suggest that the coming months will reveal whether the government’s approach will succeed in stimulating investment without exposing the financial system to undue risk. Meanwhile, the political calendar looms, with the 2027 elections likely to shape the trajectory of future economic reforms.