The Argentine economy is in an extreme situation. After years of unfortunate policies, rampant inflation and deterioration of the productive sector, President Javier Milei has made a 180-degree turn from the policies that have prevailed until now, in an attempt to reverse the situation. The problem is that This “shock therapy” is very painful in the short term and does not guarantee success.given the disastrous state of Argentina’s public finances and the economy in general. Furthermore, although Milei continues to enjoy popular support, some of the country’s politicians are taking steps in the opposite direction and accentuating some of the ills that currently afflict the South American economy. This is the case of the government of La Rioja (Argentina’s little Venezuela), where Money printers are working at full speed to issue new currency to compensate for the austerity imposed by MileiIt is still too early to decide the final outcome, but chaos seems guaranteed: the “chacho” (the name of the new currency) is already circulating at full speed in the province of La Rioja.
Despite its historical and cultural wealth, the province has experienced very limited economic development in recent decades, placing it among the jurisdictions with the highest poverty levels in Argentina. According to official data, in recent years, More than 35% of the population of La Rioja lives in povertyand social inequalities are significantly manifested. In addition, 70% of workers are employed in the public sectorwhich makes this province even more unique. You could say that La Rioja is a kind of little Venezuela (or an exaggerated Argentina) within Argentina itself.
There are few places in Argentina as poor as La Rioja, a desolate province (one of the least populated) nestled in the clay highlands that make up the country’s northwestern border with Chile. And it is here, in La Rioja, that one can best observe the financial cost of President Javier Milei’s “shock therapy,” a risky attempt to control chronic inflation. When Milei slashed monthly transfers (in order to achieve budget surpluses) from the federal government to the provinces, La Rioja went bankrupt. In February, he fell default. And soon the fragile local economy sank into a deep recession. An impoverished economy, eaten away by inflation, with a dysfunctional labor market and where populism reigns. Comparisons with Venezuela were not long in coming.
Then the governor of the province, Ricardo Quintela, declared critic of Mileiimplemented a radical plan. He created La Rioja’s own currency, “el chacho,” printed banknotes and began delivering them in bundles of 50,000 to all government officials. It was a little extra bonus, Quintela explains, to help people buy basic goods that were inaccessible to them. Merchants were not forced, but rather encouraged, to accept chachos as if they were pesos. One chacho is equal to one peso.
Consumers ‘melt’ chachos
On a cold morning in late August, workers in the province, dressed in thick coats, gathered to line up to receive the new currency. Some complaints began to emerge as the morning turned to afternoon and the line moved at a snail’s pace –“seven hours to receive 50,000 dirty chachos”“But the general atmosphere was relaxed,” one complained, “and they chatted and drank mate. The payment they received, about $40, is a considerable sum in a province where the average monthly wage is only $240.”
At Refinor, a gas station in the provincial capital, sales jumped 10 percent that morning. And at Noed-Fama, a small butcher shop on the corner, about half the customers paid in the new currency that first week. Cashier Juan Bonaldi said the owners, afraid of ending up with too many chachos, created their own (very detailed) rules: Customers will only receive change in pesos if the price of the meat they buy is at least 80 percent of the value of the children they give birth to. Otherwise, the change will be made in cash or, when that is not possible, the order will be canceled.
For traders eager to get rid of their chachos, Quintela directed them to the two government offices in the capital where, After a mandatory 48-hour wait, they will be exchanged for pesos. Wait until December, Quintela told them, and the provincial government will pay you 1.17 pesos for each chacho, which represents 17% interest in pesos that, annualized, amounts to more than 50%.
This illustrates the essence of the entire Chachos plan, ultimately: a way for a failing province that has seen its federal funds cut off and its access to domestic and international debt markets blocked to obtain financing and continue spending.
The vast public sector of La Rioja
Controlled by the left-wing Peronist party that has ruled the country for most of this century, two out of three workers in the province are employed in the public sector. In addition, the regional government owns dozens of companies—mines, vineyards, poultry farms, glassworks—through which it controls much of the local economy. When Milei began his frantic attempt to break with the Peronist economic model and turn the country around, it was perhaps inevitable that La Rioja would be the first to fall. Critics of the provincial government have given it a damning label: Venezuela..
Mariana Chanampa, vice president of a business chamber on the outskirts of the capital of La Rioja, says that the way people are willing to queue for hours “to collect a gift that will allow them to eat” for a few days shows how true this is, the idea being the comparison with Venezuela. The chacho, he says, “is a reflection of this poverty.”
Ángel Vicente Chacho Peñaloza is a legend in the province. His monuments dot the landscape. In most of them, Chacho, a fierce local leader who made his name fighting Buenos Aires’ forces during the civil wars of the 19th century, strikes a menacing pose, spear over his shoulder, commanding his troops.
That’s the wild image that adorns the new notes. There’s also a QR code on each bill that, when scanned, displays a harsh message against the Milei government for depriving the province of federal funds it deserves.
Billions of children
Chachos are available in denominations of 1,000 to 50,000. Until now About 3 billion chachos were distributed, or about 3 million dollars.and that amount is expected to rise to 9 billion. For now, it is not much, but, according to experts, it is a sign of things to come, both in La Rioja and, perhaps, throughout the country. If the tactic seems to work in La Rioja – or at least earn Quintela political points – other governors could follow, they say.
“Who’s to say that another governor won’t do something similar?” asks Nicolas Casas, an economics professor at the National University of La Rioja. He doubts anyone will try it soon, but enthusiasm for the idea could start to grow, he says. “It’s like a snowball.”
Something similar has happened before. In the early 2000s, when the federal government imposed an austerity plan similar to Milei’s current one on the country, the provinces issued their own currencies. In total, more than a dozen provinces joined, including La Rioja (that province also tried it in the 1980s). The coins had mixed success as the country sank into crisis before the new Peronist government that arrived in Buenos Aires in 2003 exchanged them all for pesos.
Milei lets it happen
Milei has said little about the chacho, but has indicated that, true to his libertarian philosophy, he will not try to ban it, as some of his allies have demanded, nor will he offer to exchange it for pesos. “No way,” he said on the social network X in January.
The exchange rate of one chacho to one peso is intended to be foolproof. Quintela said that, even if Stores can refuse to accept chachos, they cannot impose a discount when accepting them as payment.. Violators, he promised, will be shut down.
It is hard to stop it, though. The chacho has obvious limitations. “You have to walk everywhere to see which stores accept them,” complains Edith Leguize, a teacher, after collecting her 50,000 chachos. And of course, they are not suitable for traveling to neighboring provinces.
There are also restrictions for employers, such as paying workers’ salaries with them. Many stores only give credit vouchers as change to customers who pay with cash. And on some websites, offers have started to appear to buy chachos with a 10% discount.
Chanampa, the president of the Chamber of Commerce, says she is surprised by how quickly Riojans spend the chachos when they receive them. They remember, he says, the failure of previous experiments with local currency and other alms programs, leaving them with pieces of paper that are severely devalued. “They are afraid it will happen to them again,” Chanampa says. “It’s nothing more than a Band-Aid. It doesn’t solve the problem.”
