Milei’s cuts are making credit harder to collect in Argentina

President Javier Milei’s austerity drive has helped steady Argentina’s economy, and yet, financial pressure keeps mounting on consumers and businesses.

Banks in recent weeks started recording initial signs of credit deterioration. Overdue credit card balances climbed to 2.8 percent in March, the highest in three years, while defaults on personal loans jumped to 4.1 percent, the highest in nine months, according to the country’s Central Bank. The number of bounced cheques is on the rise, too.

Overall, bad debt charges across Argentina’s financial system reached a five-year peak when measured as a share of total assets, the Central Bank data shows. Stress is also building among corporates, with an increase in business defaults pointing to more troubles ahead.

The findings underscore some of the challenges that Milei faces as his administration pushes ahead with aggressive fiscal tightening. “It’s a yellow light. Credit collection is becoming more difficult,” said Gastón Rossi, director of Banco Ciudad de Buenos Aires, one of the country’s biggest banks.

Just over a year and a half since Milei took office, households are under strain from stagnant wages and lingering inflation, which is still running in double digits despite recent declines.

Against this backdrop, the number of bounced cheques climbed to the highest in April since the Covid-19 pandemic five years ago, topping 64,000 in absolute terms, with a rejection rate of 1.3 percent relative to total cleared cheques. For comparison, that ratio stood at 0.8 percent in the United States in 2024, according to US Federal Reserve data.

On the corporate side, firms across sectors including industry, retail, construction and entertainment — particularly exporters — are feeling the squeeze from weaker consumer spending and shrinking profit margins. Companies that once profited from borrowing in pesos and exploiting differences in exchange rates are now struggling. 

Many of them have also lost access to a once-lucrative capital market fuelled by exchange controls. Local investors, long eager to snap up dollar-denominated or dollar-linked corporate debt as a hedge against currency risks, are becoming more selective. The lifting of restrictions has given them new options to dollarise their portfolios. 

Meanwhile, a recent wave of corporate defaults has prompted sharper scrutiny of issuers and instruments alike, with companies like Albanesi SA missing interest payments and Celulosa Argentina SA warning of a bond default. Citrus producer San Miguel AGICI declared its latest debt issue on the local market void on May 13, while Petrolera Aconcagua Energía SA decided to tap overseas investors to raise US$250 million, only to find little demand.

The credit jitters are a worrying development for Milei, who faces midterm elections in October. The results of the vote will send a crucial signal to investors on whether the libertarian president still has broad public support for his austerity agenda.

“Milei’s administration faces a tough choice ahead of the elections: stabilise or stimulate,” said Banco Ciudad’s Rossi. “The government has opted to bring down inflation as quickly as possible, aiming for the lower rate by October, even if real wages stagnate or dip slightly,” he said.