Increasing US Dollar Debt Levels in Argentina
In 2024, Argentinean companies are increasingly turning to commercial loans in US dollars, a trend shaped by the country's ongoing economic challenges and policy responses. This shift, which has seen a significant increase in dollar-denominated debts, poses potential implications for the country's financial stability.
Large Argentine companies are actively issuing dollar-denominated bonds, as evidenced by rapid dollar debt issuance by top firms during the year. This strategy allows them to access foreign capital despite domestic economic volatility, a move facilitated by Argentina's recent international loans and the gradual relaxation of capital controls on foreign exchange.
However, this trend presents several risks. Companies borrowing in US dollars face significant currency risk, as any peso depreciation inflates the local currency cost of servicing dollar debt, increasing the risk of defaults and financial strain. The partial easing of capital controls and a partial floating exchange rate provide some stabilization, but the peso remains fragile.
Rising dollar debt has been linked to a sharp increase in credit defaults within Argentina, with credit card defaults and personal loan delinquencies increasing notably through 2024 and into 2025. Moody’s and other credit agencies have warned about deteriorating loan portfolio performance among non-financial credit providers, tied to rising debt-to-salary ratios and worsening ability to service debt in USD.
Banks and financial institutions may face heightened credit risks from corporate borrowers struggling with dollar debt repayments, potentially leading to stress in the financial sector. Argentina’s public debt is already elevated (above 120% of GDP), and the rise in corporate dollar debt compounds external vulnerability. A recent U.S. court ruling affecting state-owned oil company YPF underscores fiscal fragility and market uncertainties, as YPF is a key revenue source and a major borrower in dollars.
If corporate defaults rise or if companies are forced into restructuring, this could amplify contagion risks to the sovereign and overall economic stability. Despite these risks, international financial institutions project economic growth (around 5.7% in 2025) supported by IMF loans and policy reforms under President Javier Milei.
The government's efforts to liberalize the economy and control inflation have improved confidence, but the still-high inflation rate and external vulnerabilities mean financial stability remains precarious. In the first eight months of the year, US dollar financing increased by 148% (US$4.31bn), according to a monthly report by Argentina's central bank (BCRA).
While the increase in private sector dollar debt, while large, is from a low base, according to Edward Glossop, if the pace of increase continues, it could pose a problem for financial stability. US dollar debt in private companies grew by 8.9% (US$590mn) in August, compared to a 0.6% rise in Argentine peso loans.
Despite the sharp rise, private dollar debts are still very small as a share of the total economy and shouldn't cause too much concern for overall financial stability, according to Edward Glossop. However, if the trend continues, careful monitoring and policy management will be essential to prevent financial distress from escalating into systemic instability.
Industry players in Argentina are increasingly relying on trade finance and business loans, with large companies actively issuing dollar-denominated bonds for access to foreign capital. This strategy, however, exposes borrowers to significant currency risk, as increasing dollar debt can exacerbate financial strain and defaults if the peso depreciates.
