How a broke Argentine province is countering Milei’s deep austerity cuts

LA RIOJA, Argentina — They look like money, fit into wallets like money and the governor promises they’ll be treated like money.

But these brightly colored banknotes aren’t pesos, the depreciating national money of Argentina, or U.S. dollars, everyone’s money of selection here.

They are chachos, a recent emergency tender invented by the left-wing populist governor of La Rioja, a province in the country’s northwest that went broke when far-correct President Javier Milei slashed federal strategy transfers to provinces as part of an unprecedented austerity program.

“Who would have imagined that one day I’d discover myself wishing I’d gotten pesos?” said Lucia Vera, a music educator 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 swap rate with pesos, and accepts chachos for levy 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 swap points.

“I require real money,” said Adriana Parcas, a 22-year-ancient 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 distribute of federal funds.

After entering office in December 2023, Milei swiftly imposed his shock therapy in a bid to reverse decades of strategy-busting populism that ran up Argentina’s monumental deficits. The cuts squeezed all of Argentina’s 23 provinces but boiled over into a packed-blown crisis in La Rioja, where the community payroll accounts for two-thirds of registered workers and the federal government’s redistributed taxes cover some 90% of the provincial strategy.

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 outcome, critics declare, of a patronage structure long used to placate gain groups at the outlay 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 agent 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 receive food from the people of La Rioja to pay the obligation that the government owes us,” Quintela told The Associated Press, portraying his chacho-printing schedule 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 recent 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 fee 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 period since the radical economist came to power.

But as Milei and his allies inform it, Quintela’s alternative offers little more than a gain 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 money, you run out money.”

Serenellini picked up a chacho note, then flicked it away like lint.

Gov. Quintela’s gambit in the remote province has had little result on Argentina’s federal finances, but that could transformation if more money-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 complete 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 money to assist cover up to 30% of community sector salaries.

With La Rioja’s average turnover 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 attempt to assist workers cope with Argentina’s 230% annual expense boost and spur the stricken local economy.

To inspire the chacho’s use, authorities commitment to pay gain of 17% on bills held to maturity on December 31.

“The closer we get to the expiration date, the more we’ll view community confidence in the chacho boost,” 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 feasible.

“Now the chacho is an alternative, an alternative for people who can’t make it to the complete of the month,” said 30-year-ancient physics educator Daniela Parra, mounting her boyfriend’s motorcycle with arms packed of chachos, ready to spend them all in one leave 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 recent spending power in a deep downturn. But accepting chachos meant filling money 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 structure 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 selection in a place like this.”

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