How a broke Argentine province is countering Milei's deep austerity cuts
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[October 17, 2024] By
ISABEL DEBRE
LA RIOJA, Argentina (AP) — They look like cash, fit into wallets like
cash and the governor promises they’ll be treated like cash.
But these brightly colored banknotes aren’t pesos, the depreciating
national currency of Argentina, or U.S. dollars, everyone’s money of
choice here.
They are chachos, a new emergency tender invented by the left-wing
populist governor of La Rioja, a province in the country's northwest
that went broke when far-right President Javier Milei slashed federal
budget transfers to provinces as part of an unprecedented austerity
program.
“Who would have imagined that one day I’d find myself wishing I’d gotten
pesos?” said Lucia Vera, a music teacher emerging from a gymnasium
packed with state workers waiting to get their monthly bonus of chachos
worth 50,000 pesos (about $40).
Across La Rioja's capital, “Chachos accepted here” decals now appear on
the windows of everything from chain supermarkets and gas stations to
upscale restaurants and hair salons. The local government guarantees a
1-to-1 exchange rate with pesos, and accepts chachos for tax payments
and utilities bills.
But there’s a catch. Chachos can’t be used outside La Rioja, and only
registered businesses can swap chachos for pesos at a few government
exchange points.
“I need real money,” said Adriana Parcas, a 22-year-old street vendor
who pays her suppliers in pesos, after turning down two customers in a
row who asked if they could buy her perfumes with chachos.

The bills bear the face of Ángel Vicente “Chacho” Peñaloza, the
caudillo, or strongman, famed for defending La Rioja in a 19th-century
battle against national authorities in Buenos Aires. A QR code on the
banknote links to a website denouncing Milei for refusing to transfer La
Rioja its fair share of federal funds.
After entering office in December 2023, Milei swiftly imposed his shock
therapy in a bid to reverse decades of budget-busting populism that ran
up Argentina's monumental deficits. The cuts squeezed all of Argentina’s
23 provinces but boiled over into a full-blown crisis in La Rioja, where
the public payroll accounts for two-thirds of registered workers and the
federal government’s redistributed taxes cover some 90% of the
provincial budget.
With just 384,600 people and little industry beyond walnuts and olives,
La Rioja received more discretionary federal funds than any other last
year except Buenos Aires, home to 17.6 million people. Yet the
province’s poverty rate tops 66% — the result, critics say, of a
patronage system long used to placate interest groups at the expense of
efficiency.
While Milei's reforms forced other provinces to tighten their belts and
lay off thousands of employees, Governor Ricardo Quintela — an ambitious
power broker in Argentina’s long-dominant Peronist movement and one of
Milei’s fiercest critics — refused to absorb the strife of austerity.
“I’m not going to take food from the people of La Rioja to pay the debt
that the government owes us,” Quintela told The Associated Press,
portraying his chacho-printing plan as a daring stand against 10 months
of crumbling wages, rising unemployment and deepening misery under Milei.
La Rioja defaulted on its debts in February and August. A New York
federal judge ordered the province to pay American and British
bondholders nearly $40 million in damages in September. Argentina’s
Supreme Court is taking up the case of the province’s refusal to charge
consumers sky-high prices for electricity after Milei’s removal of
subsidies.
“There’s an alternative path to the cruelty of policies that the
president is applying,” Quintela said.
He appeared confident, speaking as Milei’s approval ratings dipped below
50% for the first time since the radical economist came to power.

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A sign reads in Spanish, "We take chachos" at a butcher shop in La
Rioja, Argentina, Monday, Sept. 23, 2024. In response to slashed
federal budgets to provinces, La Rioja is printing a new emergency
tender called "chachos" to pay state workers and spur the economy.
(AP Photo/Natalia Diaz)
 But as Milei and his allies tell it,
Quintela’s alternative offers little more than a return to
Argentina’s habitual Peronist preserve of reckless spending — and
insolvency — that delivered the unmitigated crisis that his
government inherited.
“You were used to having your tie fastened for you and your shoes
polished, but now, you’ve got to tie the knot yourself,” Eduardo
Serenellini, press secretary of Milei’s office, snapped at La Rioja
business leaders on a recent visit to the province. “When you run
out of cash, you run out cash.”
Serenellini picked up a chacho note, then flicked it away like lint.
Gov. Quintela’s gambit in the remote province has had little effect
on Argentina’s federal finances, but that could change if more
cash-trapped provinces catch on, as happened during Argentina’s
terrible financial crisis of 2001, when a similarly brutal austerity
scheme sent over a dozen provinces scrambling to print their own
parallel currencies.
Unlike two decades ago, when former President Néstor Kirchner, a
Peronist, put an end to the chaos by redeeming “patacones,”
“cecacores” and “boncanfores” for pesos, President Milei has ruled
out a bailout for La Rioja.
“We will not be accomplices to irresponsible people,” Milei warned
in a recent interview with Argentine TV channel Todo Noticias. But
the libertarian purist added that he couldn’t stop La Rioja from
doing what it pleased, considering that Argentina's constitution
allows for such desperate financial work-arounds.
The chacho hit the streets in August after La Rioja’s legislature
approved plans to run off $22.5 billion pesos worth of the currency
to help cover up to 30% of public sector salaries.
With La Rioja’s average income sinking below $200 per month and
stores shuttering for lack of business, authorities doled out 8.4
billion pesos worth of the scrip in monthly bonuses in August and
September, an effort to help workers cope with Argentina’s 230%
annual inflation and spur the stricken local economy.
To encourage the chacho's use, authorities promise to pay interest
of 17% on bills held to maturity on December 31.

“The closer we get to the expiration date, the more we’ll see public
confidence in the chacho increase,” said provincial treasurer
advisor Carlos Nardillo Giraud.
Most state workers interviewed in the many chacho lines spilling
onto La Rioja’s sidewalks last month said they wanted to get rid of
the bills as quickly as possible.
“Now the chacho is an alternative, an option for people who can’t
make it to the end of the month,” said 30-year-old physics teacher
Daniela Parra, mounting her boyfriend’s motorcycle with arms full of
chachos, ready to spend them all in one go at the supermarket. “Who
knows what will it be next month?”
On the streets, merchants said they felt locked in a catch-22.
Rejecting chachos meant turning away customers with new spending
power in a deep recession. But accepting chachos meant filling cash
registers with money that’s worthless to foreign suppliers and
already changing hands at a discount to pesos on the street.
“They've formed a system where you're forced to depend on the state
for everything,” said Juan Keulian, the director of La Rioja’s
Center for Commerce and Industry. “There’s no choice in a place like
this."
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