Recalibrating scenarios with a tailwind and the electoral calendar working against
The world remains a whirlwind, but for now it favors Argentina. The intensification of the conflicts in the Middle East and Ukraine, together with the weather outlook associated with El Niño, pushed the prices of our exports up again. Oil returned to the USD95 area, and soybeans to USD483. Volumes add to prices: a record harvest in 2025/26, good prospects for the next campaign and an energy infrastructure that is beginning to allow the increase in Vaca Muerta production to translate effectively into higher exports. In turn, despite the steepening of the Treasuries curve, emerging risk remains relatively insulated.
The tailwind from abroad helps but is not enough to clear the road. The financial normalization that followed the October elections took an impasse: country risk returned to the 500-point area and the forward rate (the one implicit between a bond maturing in October 27 and another maturing in November 28) went from lows of 11% in mid-July to 15.7%, conditioning next year’s financial program.
Meanwhile, the Treasury/BCRA tandem managed to rebuild the dollar-rate equilibrium. The BCRA kept buying dollars — more than USD14,000 million so far since the beginning of the year — net reserves improved and the Treasury absorbed a good part of the pesos issued against those purchases through debt placements at longer maturities and indexed at high rates. Since December, while net reserves rose USD9,500 million, the Treasury’s peso debt measured in dollars rose USD25,000 million, of which a third returned to the banks’ balance sheets.
While there are more dollars, individuals’ formation of external assets keeps working like a “Pac Man”. Since last October’s elections it has accumulated USD19,000 million and, since capital controls on individuals were lifted, almost USD46,000 million. Part of those dollars returns to the system via deposits and subscriptions to debt from companies, provinces and, more recently, the Treasury itself. Companies and provinces settle those dollars in the MULC; the BCRA buys part of them and another part is bought again by individuals, who once more subscribe to debt, restarting the circuit. Rather than a genuine inflow of capital from abroad, what appears is a recirculation of dollars within the system —“endogenous dollarization”— exacerbated by the creation of dollar accounts via apps (the number of individuals’ dollar accounts rose by 7.4 million from the end of 2023 to 23.5 million). It is a mechanism that can work as long as the horizon lengthens and access to credit is maintained, but fundamentally as long as that borrowing finances activities that generate export dollars able to cover the increase in the interest account. An important part is pre-funding energy projects, another part went to the financial system and another part is going to finance current and capital spending in the provinces.
The problem is that on the other side of that financial equilibrium there is a real economy that never quite gains traction. The BCRA’s dollar purchases create pesos, but those pesos that go into deposits (the use of currency in circulation and non-interest-bearing accounts keeps falling) do not return to the private sector through peso credit. Household arrears multiplied fivefold since the end of 2024 and continued rising through July. It is not, at least for now, a systemic problem for the banks. It is a household balance-sheet problem: it restricts new credit and makes it more expensive, hits consumption and begins to affect the capacity to generate income in an economy where a growing share of working capital increasingly falls on individuals as self-employment (monotributo) grows and formal employment falls.
But it has also become a political problem that cuts across the Government’s electoral base. The problem is concentrated among the young and is very low among those over 65. 50% of borrowers in arrears owe less than $1.1 million (half a formal salary, $315 thousand on average, 60% to non-bank lenders) and represent 5% of arrears ($0.9 trillion, 74% to banks). 9.5% of borrowers in arrears owe more than five salaries ($18 million on average), represent 58% of arrears and are concentrated in the banks.
Finally, the National Treasury’s commitment to fiscal balance remains the anchor, although with the drop in revenues it makes fiscal policy very contractionary. Tax revenue has accumulated a real decline of 3.8% in the year and the resources allocated to the Nation fell from 15.3% of GDP at the end of 2024 to 14.1% today. Lower export duties and tariffs, exemptions and an economy that grows little reduce the base on which the surplus rests. If revenues continue to fall, the room to keep adjusting spending without hurting activity even further becomes ever narrower.
The two questions that define the scenarios for 2027 that we include in this report remain: 1) will there still be a lender of last resort for Argentina after the November elections in the USA? 2) can the Argentine election be sorted out without going through a runoff with what the market perceives as “the abyss”. Inside we include a decision tree on the electoral scheme so that each reader can assign probabilities. The paradox is that we reach the election year with more dollars, more reserves and a much better external front than we imagined a few months ago, but also with less credit, indebted households, an increasingly dual economy that on average grows very little, and a financial program whose sustainability depends increasingly on lengthening the horizon.