Argentina's Province of La Rioja is Launching a Quasi-Currency Test for the Presidency.
Abstract: Issuing a quasi-currency, the Chacho by an Argentine province La Rioja highlights a growing divide between the Federal Government of President Javier Milei and the provinces over disbursal of federal funds to the provinces. The divide is widening and encompasses ideological lines and may prove to be a test for federalism in Argentina.
In September 2024, the province of La Rioja, located in the north-western region of Argentina, launched its quasi-currency called Chacho. This was in response to the economic policies of President Milei, which included a reduction in budgets for provinces. Chacho is valued at the same value as the official Argentine currency, Peso, and is also known as BOCADE (Debt-Cancellation Bonds) or Debt-Cancelation Bonds. It can be used to pay salaries and conduct daily transactions.
Argentina has a history of its provinces issuing quasi-currencies during times of economic crisis. In 1985, and again in 2001, La Rioja province issued similar currencies. In 2002, fifteen other provinces followed suit. Although these currencies may seem like a good idea at the time, their long-term viability is questionable and could be detrimental to the Argentine economy and political system.
The issuance of the Chaco may be observed within the broader framework of relations between the Argentine presidency and the provinces. Since President Milei took office in December 2023, he has faced not only economic challenges, but also challenges garnering support for his policies from other political parties and provincial governments. His party, La Libertad Avanzada (LLA), does not have enough seats in the Argentinian Congress and is not in power in any of the 24 provinces. Therefore, to implement sweeping reforms, political support from allies is needed. However, many provincial governments have expressed dissatisfaction with his policy of reducing budgets for the provinces, leading to ongoing friction between the two parties.
The governor of the province, Ricardo Quintela, from the left-wing Justicialist party, had previously criticized President Milei's economic measures and supported the issuance of the Chaco. However, President Milei criticized the launch of quasi-currency and defended the economic measures adopted by his government, which include reducing social spending and adhering to recommendations laid out by the International Monetary Fund (IMF), while suspending public works due to the country's poor financial situation in order to avoid default.
Hence, few scenarios emerge in the current context. Primarily, it highlights the growing divide between La Rioja and the left-leaning opposition, and the Presidency of Javier Milei. This is because the economic policies of the current government are not well-received. There are rumors that other provinces might issue similar quasi-currencies due to the financial situation, even though President Milei and the 18 provincial governors signed an agreement to cooperate on financial issues in May 2024. Finally, the long-term viability of these quasi-currencies will be tested given Argentina's economic vulnerability.
This paper examines President Milei's economic measures, the nature and viability of Chacho, and the growing political divide between the Presidency and Provincial Governments.
President Milei's economic adjustment
Argentina has been facing economic turbulence for more than a decade, with some of the highest inflation rates in the world, ongoing economic stagnation and rising poverty. The main cause of Argentina's financial difficulties and chronic inflation is recurring public spending, which is caused by money creation. In particular, Argentina has struggled with persistent fiscal deficits and high inflation for a long time. From 2000 to 2024, the average inflation rate was 19%, and the government defaulted nine times on its national debt. Argentina's debt to GDP ratio in 2018 was 88%. Over the last ten years, per capita income in the country has decreased by 10%, and one third of the population lives in extreme poverty. In addition, the history of sovereign defaults in Argentina has led to prohibitively high interest rates on international credit markets, making it difficult to obtain international financing.. The inevitable result has been a decline in the value of the Argentine peso, leading to less purchasing power. In order to prevent currency depreciation, policy makers implemented price and capital controls, as well as multiple exchange rates, negative real interest rates, import restrictions, and increased export taxes. However, these policies have only served as stopgaps, creating pricing distortions, widening the difference between official and unofficial market exchange rates, and worsening the central bank's balance sheet. As a result, despite the potential for growth, recurrent economic volatility has hindered many opportunities. Establishing a financially sound state would increase national savings and capital flows, reduce interest rates and foreign currency risks, and create an environment conducive to investment and growth.
Since President Milei assumed office on December 10, 2023, his administration has adopted a dual approach to stabilizing Argentina's economy. The first component is fiscal reform, which aims to counter inflation and increase the value of the peso. Recognizing chronic overspending as the main cause of inflation, the government has focused on eliminating the large fiscal deficit. Some measures include devaluation of the pesos coupled with tax changes, reducing the role of government, temporary suspension of public works, and reducing social spending. These economic measures aim to avoid a large fiscal deficit, reduce inflation, and boost productivity. Additionally, the government is working to comply with IMF requirements in order to avoid another default on the US$44 billion loan.. These measures have been met with mixed reactions. The business sector and the International Monetary Fund (IMF) show confidence in the government, while the opposition questions the measures.
While these measures have brought out the country from the brink of a default, reduced month-wise inflation (although yearly inflation remains high), led to a gradual growth in international reserves and stabilised the currency exchange rate, the social and economic costs are quite high. Reduction in subsidies and social spending led to protests as real wages tumbled and has driven the country into recession. Focussing on the balancing act between stabilising the economy and nurturing growth, the Argentine economy needs copious amount to time to implement fresh monetary policies to keep up with the IMF’s recommendations and enable economic growth.
Explaining the quasi-currency of La Rioja - the Chacho in response to President Milei's economic adjustments.
In January 2024, La Rioja Province approved the creation of the Chacho[vii], a quasi-currency that would be used to pay salaries and wages. This was created in response to the federal government's fiscal adjustment and reduction of funding to the province amounting to 9.3 billion Pesos. Although no other province has yet announced the creation of quasi-currencies to offset budgetary deficits, there are speculations that it may occur in the future. The notes will be printed in various denominations[viii]. To clear out any confusion regarding the Chacho, the provincial government of La Rioja has termed the quasi-currency as bonds as only the federal government has the authority to issue currencies. The Chacho may be used for payments as well at establishments which are in agreement with the provincial government, on presenting identification and may also be exchanged for Pesos[ix].
While the Chacho may seem like a simple medium of exchange and may have limited reach, being restricted only in the province of La Rioja, there are far reaching effects. As explained earlier, Argentina’s persistent economic troubles have led to a reduction in the real value and the purchasing power of the Peso. Consequently, a lower valued currency coupled with extremely high inflation makes imports, payment for goods and services expensive leading to restricted savings[x]. The provincial government’s rationale for issuing the Chacho is to counter lack of cash liquidity, fill up budget deficit and enable the people of the province to carry out their daily business seamlessly. It is also a financial instrument to boost local consumption and generate economic growth[xi]. However, while the Chacho may be a short-term method to boost cash liquidity, its long-term viability is uncertain[xii].
Argentina’s previous experiences[xiii] with quasi-currencies led to financial uncertainty, and erosion of savings and in turn, stressed the federal treasury. Even in the current scenario, there are possibilities of financial establishments refusing the accept the Chacho as a legal tender. Since, its restricted only within the province of La Rioja, payments beyond it especially at the federal level are impossible, which restricts its usability. Besides, it may lead to overspending, thus driving up consumption and inflation without any financial cushion to absorb such inflationary shocks[xiv]. This may also lead to a complete loss of value of the Chacho, thus exacerbating the problem of inflation and liquidity crunch. A provincial-level currency also erodes the federal structure of a polity and dilutes state structures. It destabilizes the economy and erodes trust in it. Circulating a fiat currency at the provincial level can not only be inflationary but also adversely affect state solvency.
A widening rift between the Federal Government and the provinces.
The quasi-currency is an economic and political response to the economic policies adopted by President Milei. Ricardo Quintela, the Governor of La Rioja and a member of the Justicialist Party, disagrees with President Milei's more libertarian views on various economic and political issues. Javier Milei argues for drastic economic reforms such as a major reduction in government spending and the introduction of free-market principles, while Ricardo Quintella favours traditional social welfare measures and greater government involvement in the economy.
In the context of Chacho, the political divide between the two political figures and their policies appears to be widening. President Milei criticized the creation and introduction of the quasi-currency, calling it illogical and disruptive to market dynamics. Argentine President believes that having multiple currencies hinders an effective monetary policy, and favors dollarization as a stable option to combat hyperinflation and restore trust in the financial system. To defend Chacho, Governor of La Rioja stated that President Milei's economic policies are more consistent with IMF recommendations, while ignoring provincial needs. He explained that Chacho is intended primarily for use within the province to boost local economy and address liquidity crunch.
However, the divide between the Presidency and provincial governments may further increase as governors of other provinces take similar steps to issue regional quasi-currencies. The struggle of President Milei to pass the Law of Bases, fiscal law, and annual budget was opposed by provincial legislatures and received lukewarm support in Congress, with opposition contesting it. Different governors may show intention to defend their provincial interests due to austerity measures introduced by the presidency. This may also lead to political realignment among governors with different ideologies. For instance, the League of Patagonian Governors[xv] bearing different ideologies laid out the foundation of regional unity and a common agenda to defend their own interests. They expressed their disagreement with the Presidency especially in the context of passing the Omnibus Law and Decree 70/2023[xvi] which would enable sweeping economic reforms by the Presidency but at the cost of a reduction in the budget for the provinces[xvii]. This is important considering that the Patagonia region of Argentina is well-known for its natural resources such as hydrocarbons, fisheries and agriculture and has considerable sway over the economy.
Furthermore, in February 2024, the Governor of the province of Chubut, Ignacio Torres and President Milei shared disagreements over budgetary allocation to the province. Governor Torres alleged that the Federal Government withheld funds, causing an economic crisis in the province and response would suspend the transfer of hydrocarbon resources to the rest of the country. The position of Governor Torress received endorsement from 23 other Provincial Governors including that from Governor Ricardo Quintela and is seen as support transcending party and ideological lines. It is interesting to note that Governor Torres is from the political party, Republican Proposal which extends support to President Milei in the Argentine Congress. In addition, Governors from different provinces such as La Rioja, La Pampa, Misiones, Río Negro and Santiago de Estero filed lawsuits at various courts against the economic policies of President Milei[xviii], while the budget was criticised by Governors of various provinces including Maximiliano Pullaro, the Governor of Santa Fe[xix] and whose party Radical Civic Union extends support to the Presidency of Javier Milei.
Hence, the challenges facing the Presidency are immense. Not only do plans for economic recovery require attention, but skilled political management with governors and Congress will be necessary. While the Justicialist Party has 11 governors, Juntos por Cambio has 10, and the remaining are governed by regional parties. Additionally, President Milei's party has only 38 out of 256 seats in the Chamber of Deputies, and only 7 out of 72 seats in the Senate, which does not have sufficient strength in Congress or a single governor in any province. President Milei will need to rely on dialogue and negotiation to gain support for his economic agenda, crossing ideological lines.
Conclusion
The issuance of the Chacho represents the first serious response to the Presidency of Javier Milei and his economic policies. This goes beyond just a financial instrument; it has significant political implications for the country, particularly in terms of relations between the presidency and the provinces. Contrasting political and economic views between President Milei, who supports a libertarian approach to the financial crisis, and Governor Ricardo Quintela, who favors a more left-leaning strategy, seem to be gaining momentum following the launch of Chacho. In this scenario, provincial governments may set aside their ideological differences in order to compel the presidency to comply with their demands, as President Milei requires support from allies and governors to implement large-scale financial plans.. Ultimately, this situation serves as a test for federalism in Argentina and for the presidency of Javier Milei given the ongoing economic crisis.
*****
*Dr. Arnab Chakrabarty, Research Fellow, Indian Council of World Affairs.
Disclaimer: Views expressed are personal.
Endnotes
[i] Named after a local military hero, Ángel Vicente “Chacho” Peñaloza who rebelled against the federal government of Buenos Aires in the 1850s.
[ii] Although he has support from the PRO (Republican Proposal from the Juntos Por Cambio coalition) and other parties, which also have governments in some provinces the test of maintaining healthy relations with these provinces is crucial for smooth functioning of the Presidency.
[iii] Casa Rosada. (2024). The May Pact was signed. Accessed 23rd September 2024. https://www.casarosada.gob.ar/international/latest-news/50573-the-may-pact-was-signed.
[iv] On 25th May 2024, President Milei and the Governors of 18 provinces entered into an agreement, known as the May Pact to cooperate on financial matters such as distribution of resources, simplifying the system of taxation, improving the fiscal balance and pension reform to name a few. The provinces that entered into the Agreement were, Autonomous City of Buenos Aires, Tucumán, Catamarca, Chacho, Chubut, Córdoba, Corrientes, Entre Ríos, Jujuy, Mendoza, Neuquén, Río Negro, Salta, San Juan, San Luis, Santa Fe, and Santiago del Estero.
[v] Economics Observatory. (2024). Argentina under a new government: what are the big economic challenges? Accessed 22nd September 2024. https://www.economicsobservatory.com/what-economic-challenges-does-argentina-face-today.
[vi] International Monetary Fund. (2024). IMF Executive Board completes the Eight Review of the Extended Arrangement Under the Extended Fund Facility for Argentina. Accessed 23rd September 2024. https://www.imf.org/en/News/Articles/2024/06/13/pr24217-imf-completes-eighth-review-of-the-extended-arrangement-under-the-eff-for-argentina.
[vii] MRI Banker’s Guide to Foreign Currency. (2024). Argentina- La Rioja: Chachos, the provincial banknotes, are in circulation. Accessed 24th September 2024. https://mriguide.com/argentina-la-rioja-chachos-the-provincial-banknotes-are-in-circulation/.
[viii] Numistimatic News. (2024). Argentine Province releases ‘Chachos’ Accessed 22nd September 2024. https://www.numismaticnews.net/paper-money/argentine-province-releases-chachos#:~:text=Argentinian%20Debt%20Cancellation%20Bonds%20(Bocade,commonly%20known%20as%20%22Chachos.%22&text=The%20Argentine%20province%20of%20La,alternative%20to%20the%20Argentine%20peso..
[ix] Gobierno de La Rioja, Republica de Argentina. (2024). Bono de Cancelacion de Deuda (BOCADE). Accessed 24th September 2024. https://www.larioja.gob.ar/chachos/.
[x] Balino Tomas. (2024). Frameworks for Stability: Policy Issues and Experiences. Accessed 24th September 2024. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://jpia.princeton.edu/sites/g/files/toruqf1661/files/2000-4.pdf.
[xi] Ambito. (2024). Los Chacos ya circulan en La Rioja: que son y cuanto valen. Accessed 23rd September 2024. https://www.ambito.com/economia/los-chachos-ya-circulan-la-rioja-que-son-y-cuanto-valen-n6025055.
[xii] AireDigital. (2024). La Rioja creo los Chachos una cuasi moneda para pagar gastos y salarios: puede pasar algo parecido en Santa Fe? Accessed 24th September 2024. https://www.airedesantafe.com.ar/economia/la-rioja-creo-los-chachos-pagar-gastos-y-salarios-puede-pasar-algo-parecido-santa-fe-n589193.
[xiii][xiii] Quasi-currencies issued during the 2002 economic crisis were the Patacón, Crédito, and the LECOP.
[xiv] Perfil. (2024). En la Rioja ya circula una cuasimoneda para desafiar a Javier Milei. Accessed 24th September 2024. https://www.perfil.com/noticias/bloomberg/bc-gobernador-desafia-a-milei-y-lanza-su-propia-moneda-los-chachos.phtml.
[xv] The League is made up of the Governors of 5 Argentinean provinces located in the Patagonia region. These provinces are La Pampa, Río Negro, Tierra del Fuego, Chubut and Santa Cruz.
[xvi] Decreto de Necesidad y Urgencia or Necessity and Urgency Decree enables the President to pass laws without a mandate of the Congress.
[xvii] Mercopress. (2024). Argentina: Patagonia League relaunched to protect local interests from national government. Accessed 29th September 2024. https://en.mercopress.com/2024/01/12/argentina-patagonian-league-relaunched-to-protect-local-interests-from-national-gov-t/comments.
[xviii] Manuel Tarricone. (2024). Milei vs. gobernadores: que provincias demandaron a la Nacion por el recorte de fondos. Chequea. Accessed 28th September 2024. https://chequeado.com/el-explicador/milei-vs-gobernadores-que-provincias-demandaron-a-la-nacion-por-el-recorte-de-fondos/.
[xix] “Ámbito. (2024). Maximiliano Pullaro cruzo a Javier Milei por el Presupuesto” No corresponde que nosotros hagamos más esfuerzo. Accessed 29th September 2024. https://www.ambito.com/politica/maximiliano-pullaro-cruzo-javier-milei-el-presupuesto-no-corresponde-que-nosotros-hagamos-mas-esfuerzo-n6060383.
[xx] The Juntos por Cambio coalition is made up of the Republican Proposal, Radical Civic Union and the Civic Coalition.
Argentina has a history of its provinces issuing quasi-currencies during times of economic crisis. In 1985, and again in 2001, La Rioja province issued similar currencies. In 2002, fifteen other provinces followed suit. Although these currencies may seem like a good idea at the time, their long-term viability is questionable and could be detrimental to the Argentine economy and political system.
The issuance of the Chaco may be observed within the broader framework of relations between the Argentine presidency and the provinces. Since President Milei took office in December 2023, he has faced not only economic challenges, but also challenges garnering support for his policies from other political parties and provincial governments. His party, La Libertad Avanzada (LLA), does not have enough seats in the Argentinian Congress and is not in power in any of the 24 provinces. Therefore, to implement sweeping reforms, political support from allies is needed. However, many provincial governments have expressed dissatisfaction with his policy of reducing budgets for the provinces, leading to ongoing friction between the two parties.
The governor of the province, Ricardo Quintela, from the left-wing Justicialist party, had previously criticized President Milei's economic measures and supported the issuance of the Chaco. However, President Milei criticized the launch of quasi-currency and defended the economic measures adopted by his government, which include reducing social spending and adhering to recommendations laid out by the International Monetary Fund (IMF), while suspending public works due to the country's poor financial situation in order to avoid default.
Hence, few scenarios emerge in the current context. Primarily, it highlights the growing divide between La Rioja and the left-leaning opposition, and the Presidency of Javier Milei. This is because the economic policies of the current government are not well-received. There are rumors that other provinces might issue similar quasi-currencies due to the financial situation, even though President Milei and the 18 provincial governors signed an agreement to cooperate on financial issues in May 2024. Finally, the long-term viability of these quasi-currencies will be tested given Argentina's economic vulnerability.
This paper examines President Milei's economic measures, the nature and viability of Chacho, and the growing political divide between the Presidency and Provincial Governments.
President Milei's economic adjustment
Argentina has been facing economic turbulence for more than a decade, with some of the highest inflation rates in the world, ongoing economic stagnation and rising poverty. The main cause of Argentina's financial difficulties and chronic inflation is recurring public spending, which is caused by money creation. In particular, Argentina has struggled with persistent fiscal deficits and high inflation for a long time. From 2000 to 2024, the average inflation rate was 19%, and the government defaulted nine times on its national debt. Argentina's debt to GDP ratio in 2018 was 88%. Over the last ten years, per capita income in the country has decreased by 10%, and one third of the population lives in extreme poverty. In addition, the history of sovereign defaults in Argentina has led to prohibitively high interest rates on international credit markets, making it difficult to obtain international financing.. The inevitable result has been a decline in the value of the Argentine peso, leading to less purchasing power. In order to prevent currency depreciation, policy makers implemented price and capital controls, as well as multiple exchange rates, negative real interest rates, import restrictions, and increased export taxes. However, these policies have only served as stopgaps, creating pricing distortions, widening the difference between official and unofficial market exchange rates, and worsening the central bank's balance sheet. As a result, despite the potential for growth, recurrent economic volatility has hindered many opportunities. Establishing a financially sound state would increase national savings and capital flows, reduce interest rates and foreign currency risks, and create an environment conducive to investment and growth.
Since President Milei assumed office on December 10, 2023, his administration has adopted a dual approach to stabilizing Argentina's economy. The first component is fiscal reform, which aims to counter inflation and increase the value of the peso. Recognizing chronic overspending as the main cause of inflation, the government has focused on eliminating the large fiscal deficit. Some measures include devaluation of the pesos coupled with tax changes, reducing the role of government, temporary suspension of public works, and reducing social spending. These economic measures aim to avoid a large fiscal deficit, reduce inflation, and boost productivity. Additionally, the government is working to comply with IMF requirements in order to avoid another default on the US$44 billion loan.. These measures have been met with mixed reactions. The business sector and the International Monetary Fund (IMF) show confidence in the government, while the opposition questions the measures.
While these measures have brought out the country from the brink of a default, reduced month-wise inflation (although yearly inflation remains high), led to a gradual growth in international reserves and stabilised the currency exchange rate, the social and economic costs are quite high. Reduction in subsidies and social spending led to protests as real wages tumbled and has driven the country into recession. Focussing on the balancing act between stabilising the economy and nurturing growth, the Argentine economy needs copious amount to time to implement fresh monetary policies to keep up with the IMF’s recommendations and enable economic growth.
Explaining the quasi-currency of La Rioja - the Chacho in response to President Milei's economic adjustments.
In January 2024, La Rioja Province approved the creation of the Chacho[vii], a quasi-currency that would be used to pay salaries and wages. This was created in response to the federal government's fiscal adjustment and reduction of funding to the province amounting to 9.3 billion Pesos. Although no other province has yet announced the creation of quasi-currencies to offset budgetary deficits, there are speculations that it may occur in the future. The notes will be printed in various denominations[viii]. To clear out any confusion regarding the Chacho, the provincial government of La Rioja has termed the quasi-currency as bonds as only the federal government has the authority to issue currencies. The Chacho may be used for payments as well at establishments which are in agreement with the provincial government, on presenting identification and may also be exchanged for Pesos[ix].
While the Chacho may seem like a simple medium of exchange and may have limited reach, being restricted only in the province of La Rioja, there are far reaching effects. As explained earlier, Argentina’s persistent economic troubles have led to a reduction in the real value and the purchasing power of the Peso. Consequently, a lower valued currency coupled with extremely high inflation makes imports, payment for goods and services expensive leading to restricted savings[x]. The provincial government’s rationale for issuing the Chacho is to counter lack of cash liquidity, fill up budget deficit and enable the people of the province to carry out their daily business seamlessly. It is also a financial instrument to boost local consumption and generate economic growth[xi]. However, while the Chacho may be a short-term method to boost cash liquidity, its long-term viability is uncertain[xii].
Argentina’s previous experiences[xiii] with quasi-currencies led to financial uncertainty, and erosion of savings and in turn, stressed the federal treasury. Even in the current scenario, there are possibilities of financial establishments refusing the accept the Chacho as a legal tender. Since, its restricted only within the province of La Rioja, payments beyond it especially at the federal level are impossible, which restricts its usability. Besides, it may lead to overspending, thus driving up consumption and inflation without any financial cushion to absorb such inflationary shocks[xiv]. This may also lead to a complete loss of value of the Chacho, thus exacerbating the problem of inflation and liquidity crunch. A provincial-level currency also erodes the federal structure of a polity and dilutes state structures. It destabilizes the economy and erodes trust in it. Circulating a fiat currency at the provincial level can not only be inflationary but also adversely affect state solvency.
A widening rift between the Federal Government and the provinces.
The quasi-currency is an economic and political response to the economic policies adopted by President Milei. Ricardo Quintela, the Governor of La Rioja and a member of the Justicialist Party, disagrees with President Milei's more libertarian views on various economic and political issues. Javier Milei argues for drastic economic reforms such as a major reduction in government spending and the introduction of free-market principles, while Ricardo Quintella favours traditional social welfare measures and greater government involvement in the economy.
In the context of Chacho, the political divide between the two political figures and their policies appears to be widening. President Milei criticized the creation and introduction of the quasi-currency, calling it illogical and disruptive to market dynamics. Argentine President believes that having multiple currencies hinders an effective monetary policy, and favors dollarization as a stable option to combat hyperinflation and restore trust in the financial system. To defend Chacho, Governor of La Rioja stated that President Milei's economic policies are more consistent with IMF recommendations, while ignoring provincial needs. He explained that Chacho is intended primarily for use within the province to boost local economy and address liquidity crunch.
However, the divide between the Presidency and provincial governments may further increase as governors of other provinces take similar steps to issue regional quasi-currencies. The struggle of President Milei to pass the Law of Bases, fiscal law, and annual budget was opposed by provincial legislatures and received lukewarm support in Congress, with opposition contesting it. Different governors may show intention to defend their provincial interests due to austerity measures introduced by the presidency. This may also lead to political realignment among governors with different ideologies. For instance, the League of Patagonian Governors[xv] bearing different ideologies laid out the foundation of regional unity and a common agenda to defend their own interests. They expressed their disagreement with the Presidency especially in the context of passing the Omnibus Law and Decree 70/2023[xvi] which would enable sweeping economic reforms by the Presidency but at the cost of a reduction in the budget for the provinces[xvii]. This is important considering that the Patagonia region of Argentina is well-known for its natural resources such as hydrocarbons, fisheries and agriculture and has considerable sway over the economy.
Furthermore, in February 2024, the Governor of the province of Chubut, Ignacio Torres and President Milei shared disagreements over budgetary allocation to the province. Governor Torres alleged that the Federal Government withheld funds, causing an economic crisis in the province and response would suspend the transfer of hydrocarbon resources to the rest of the country. The position of Governor Torress received endorsement from 23 other Provincial Governors including that from Governor Ricardo Quintela and is seen as support transcending party and ideological lines. It is interesting to note that Governor Torres is from the political party, Republican Proposal which extends support to President Milei in the Argentine Congress. In addition, Governors from different provinces such as La Rioja, La Pampa, Misiones, Río Negro and Santiago de Estero filed lawsuits at various courts against the economic policies of President Milei[xviii], while the budget was criticised by Governors of various provinces including Maximiliano Pullaro, the Governor of Santa Fe[xix] and whose party Radical Civic Union extends support to the Presidency of Javier Milei.
Hence, the challenges facing the Presidency are immense. Not only do plans for economic recovery require attention, but skilled political management with governors and Congress will be necessary. While the Justicialist Party has 11 governors, Juntos por Cambio has 10, and the remaining are governed by regional parties. Additionally, President Milei's party has only 38 out of 256 seats in the Chamber of Deputies, and only 7 out of 72 seats in the Senate, which does not have sufficient strength in Congress or a single governor in any province. President Milei will need to rely on dialogue and negotiation to gain support for his economic agenda, crossing ideological lines.
Conclusion
The issuance of the Chacho represents the first serious response to the Presidency of Javier Milei and his economic policies. This goes beyond just a financial instrument; it has significant political implications for the country, particularly in terms of relations between the presidency and the provinces. Contrasting political and economic views between President Milei, who supports a libertarian approach to the financial crisis, and Governor Ricardo Quintela, who favors a more left-leaning strategy, seem to be gaining momentum following the launch of Chacho. In this scenario, provincial governments may set aside their ideological differences in order to compel the presidency to comply with their demands, as President Milei requires support from allies and governors to implement large-scale financial plans.. Ultimately, this situation serves as a test for federalism in Argentina and for the presidency of Javier Milei given the ongoing economic crisis.
*****
*Dr. Arnab Chakrabarty, Research Fellow, Indian Council of World Affairs.
Disclaimer: Views expressed are personal.
Endnotes
[i] Named after a local military hero, Ángel Vicente “Chacho” Peñaloza who rebelled against the federal government of Buenos Aires in the 1850s.
[ii] Although he has support from the PRO (Republican Proposal from the Juntos Por Cambio coalition) and other parties, which also have governments in some provinces the test of maintaining healthy relations with these provinces is crucial for smooth functioning of the Presidency.
[iii] Casa Rosada. (2024). The May Pact was signed. Accessed 23rd September 2024. https://www.casarosada.gob.ar/international/latest-news/50573-the-may-pact-was-signed.
[iv] On 25th May 2024, President Milei and the Governors of 18 provinces entered into an agreement, known as the May Pact to cooperate on financial matters such as distribution of resources, simplifying the system of taxation, improving the fiscal balance and pension reform to name a few. The provinces that entered into the Agreement were, Autonomous City of Buenos Aires, Tucumán, Catamarca, Chacho, Chubut, Córdoba, Corrientes, Entre Ríos, Jujuy, Mendoza, Neuquén, Río Negro, Salta, San Juan, San Luis, Santa Fe, and Santiago del Estero.
[v] Economics Observatory. (2024). Argentina under a new government: what are the big economic challenges? Accessed 22nd September 2024. https://www.economicsobservatory.com/what-economic-challenges-does-argentina-face-today.
[vi] International Monetary Fund. (2024). IMF Executive Board completes the Eight Review of the Extended Arrangement Under the Extended Fund Facility for Argentina. Accessed 23rd September 2024. https://www.imf.org/en/News/Articles/2024/06/13/pr24217-imf-completes-eighth-review-of-the-extended-arrangement-under-the-eff-for-argentina.
[vii] MRI Banker’s Guide to Foreign Currency. (2024). Argentina- La Rioja: Chachos, the provincial banknotes, are in circulation. Accessed 24th September 2024. https://mriguide.com/argentina-la-rioja-chachos-the-provincial-banknotes-are-in-circulation/.
[viii] Numistimatic News. (2024). Argentine Province releases ‘Chachos’ Accessed 22nd September 2024. https://www.numismaticnews.net/paper-money/argentine-province-releases-chachos#:~:text=Argentinian%20Debt%20Cancellation%20Bonds%20(Bocade,commonly%20known%20as%20%22Chachos.%22&text=The%20Argentine%20province%20of%20La,alternative%20to%20the%20Argentine%20peso..
[ix] Gobierno de La Rioja, Republica de Argentina. (2024). Bono de Cancelacion de Deuda (BOCADE). Accessed 24th September 2024. https://www.larioja.gob.ar/chachos/.
[x] Balino Tomas. (2024). Frameworks for Stability: Policy Issues and Experiences. Accessed 24th September 2024. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://jpia.princeton.edu/sites/g/files/toruqf1661/files/2000-4.pdf.
[xi] Ambito. (2024). Los Chacos ya circulan en La Rioja: que son y cuanto valen. Accessed 23rd September 2024. https://www.ambito.com/economia/los-chachos-ya-circulan-la-rioja-que-son-y-cuanto-valen-n6025055.
[xii] AireDigital. (2024). La Rioja creo los Chachos una cuasi moneda para pagar gastos y salarios: puede pasar algo parecido en Santa Fe? Accessed 24th September 2024. https://www.airedesantafe.com.ar/economia/la-rioja-creo-los-chachos-pagar-gastos-y-salarios-puede-pasar-algo-parecido-santa-fe-n589193.
[xiii][xiii] Quasi-currencies issued during the 2002 economic crisis were the Patacón, Crédito, and the LECOP.
[xiv] Perfil. (2024). En la Rioja ya circula una cuasimoneda para desafiar a Javier Milei. Accessed 24th September 2024. https://www.perfil.com/noticias/bloomberg/bc-gobernador-desafia-a-milei-y-lanza-su-propia-moneda-los-chachos.phtml.
[xv] The League is made up of the Governors of 5 Argentinean provinces located in the Patagonia region. These provinces are La Pampa, Río Negro, Tierra del Fuego, Chubut and Santa Cruz.
[xvi] Decreto de Necesidad y Urgencia or Necessity and Urgency Decree enables the President to pass laws without a mandate of the Congress.
[xvii] Mercopress. (2024). Argentina: Patagonia League relaunched to protect local interests from national government. Accessed 29th September 2024. https://en.mercopress.com/2024/01/12/argentina-patagonian-league-relaunched-to-protect-local-interests-from-national-gov-t/comments.
[xviii] Manuel Tarricone. (2024). Milei vs. gobernadores: que provincias demandaron a la Nacion por el recorte de fondos. Chequea. Accessed 28th September 2024. https://chequeado.com/el-explicador/milei-vs-gobernadores-que-provincias-demandaron-a-la-nacion-por-el-recorte-de-fondos/.
[xix] “Ámbito. (2024). Maximiliano Pullaro cruzo a Javier Milei por el Presupuesto” No corresponde que nosotros hagamos más esfuerzo. Accessed 29th September 2024. https://www.ambito.com/politica/maximiliano-pullaro-cruzo-javier-milei-el-presupuesto-no-corresponde-que-nosotros-hagamos-mas-esfuerzo-n6060383.
[xx] The Juntos por Cambio coalition is made up of the Republican Proposal, Radical Civic Union and the Civic Coalition.
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