Argentina's domestic crisis deepens as emerging markets broadly stabilize

Argentina's country risk spread pushed past 511 basis points on Tuesday, its highest reading since May, but what unnerves the market is not so much the number itself as the divergence behind it: while the average for emerging market bonds barely moved in August, Argentine sovereigns have racked up losses of between 3% and 4% over the same period. That gap reveals that the pressure on Argentina is not purely global but carries a local dimension investors can no longer ignore.

The international backdrop compounded Tuesday's session. The yield on the 30-year U.S. Treasury touched 5.34%, its highest level since 2007, driven by the combination of oil prices around $91 a barrel, fiscal concerns over the U.S. deficit, and the massive volume of debt issuance tied to AI infrastructure financing by Meta, Google, Microsoft and Amazon. That global deterioration acts as a catalyst, but analysts consulted by La Nación and El Cronista agree that the Argentine component of the move is too pronounced to attribute solely to emerging markets: the Global 2035 moved in short order from yielding 8.6% to 9.5% annually, nearly a full extra point demanded by the market for Argentina-specific risk.

Bonares and Globales fell 1.8% on average Tuesday, while ADRs of Argentine companies gave up as much as 4.7%, with Bioceres leading the declines and YPF's ADR retreating 3.8% to $50.68 despite Brent crude trading higher. The S&P Merval slid 1.9% in pesos to 2,891,651 points, its lowest level since May. In the FX market, the wholesale dollar closed at 1,495 pesos, just 24.8% below the ceiling of the floating band set by the BCRA at 1,865 pesos, while the blue-chip dollar added ten pesos to settle at 1,555. The central bank purchased only $10 million in the spot market, well below its usual pace, reflecting official caution about revealing a sharper drawdown in reserves at a moment of stress.

Behind the weakness in assets lies a stack of signals the market has started to process all at once. July inflation came in at 2.1%, breaking three consecutive months of deceleration and topping private consensus expectations, though August estimates point to a return below 2%. Wholesale inflation printed at 0.8%, the lowest reading in fourteen months, and President Milei celebrated on social media with a terse "in the end, July started at zero." But cumulative retail inflation year-to-date already runs around 19.3%, while the wholesale dollar rose only 0.7% in August, entrenching the perception of currency appreciation that worries economists such as Carlos Melconian, who stated that "the government is going to have to change course" because "dollar-denominated costs in Argentina are suffocating."

July's fiscal surplus, of 2.96 trillion pesos in primary terms and 244.897 billion in financial terms, adds a positive note to the public accounts, but was achieved through a 7% real cut in spending and with the extraordinary boost from income tax revenue, whose payment had been postponed from June. The cumulative total for the first seven months of the year amounts to just 0.9% of GDP in primary surplus and 0.1% in financial terms, still far from the 1.4% annual target agreed with the IMF. Gross public debt rose by $10.53 billion in July as the net result of accounting valuation effects and exchange rate differences, following two months of reduction.

Signals of fragility in the real economy are increasingly hard to overlook. Metallurgical output fell 4.4% year-on-year in July and is operating at 39.2% of installed capacity, one of the lowest levels in the historical series, comparable only to the worst moments of the pandemic. Registered private employment has lost 241,000 jobs since November 2023, with manufacturing bearing the brunt of formal job destruction. Only three of fourteen sectors created jobs over that period: fishing, mining, and services tied to natural resources. Average real private-sector wages fell 0.6% below the November 2023 level in June, breaking a twenty-month streak of positive readings.

Consulting firm Eunomia found that 27.2% of borrowers in the AMBA are in arrears on a universe of 5.4 million people, while Fundación Observatorio PyME reported that 24% of small and medium-sized industries recorded overdue payments during the second quarter, double the level of a year earlier. Roberto Urquía, owner of the oilseed company General Deheza and one of the country's wealthiest businessmen, was blunt on Radio Vos: "People can't make it to the 15th of the month. They're simply not buying anymore, whether it's a Chinese-run store or a local one." The closure of Will Der SA, a manufacturer of sportswear for Adidas, Puma and Lacoste, with 120 layoffs and no guarantee of severance payments, illustrates the deterioration in labor-intensive sectors. For next Thursday, SME chambers are calling a march on Plaza de Mayo under the slogan "SMEs are Argentine too," citing the closure of more than 30,000 companies since December 2023.

Against this backdrop, the government made two policy decisions aimed at opening financing channels. The BCRA formalized, through Communication A 8467, the extension of dollar-denominated credit to companies that do not generate foreign exchange, allowing banks to allocate up to 15% of their foreign-currency deposits to that purpose, though with the requirement to carefully assess borrowers' cash flows. The measure, described by Finance Secretary Federico Furiase as potentially mobilizing $6 billion, was criticized by former minister Hernán Lacunza as "a shortcut that leads you into a problem," given the possibility that an eventual FX correction could crystallize heavy losses for those borrowing in dollars without generating them. FX hedging demand has already quadrupled since late May: the stock of dollar-linked instruments and futures topped $12.1 billion.

On the political front, Economy Minister Caputo closed a deal with the governors of the Norte Grande to raise electricity subsidies in hot-weather zones, a necessary condition to secure Senate votes for the Zonas Frías Law. A swap of the Dollar-Linked Letter maturing at the end of the month drew only 34.12% participation, leaving most of the payment obligation unresolved and raising uncertainty about whether the late-July episodes of FX volatility will recur. The share of peso maturities pushed past the elections rose from 18% to 45% in the latest auctions, according to a Delphos Investment report, revealing the economic team's nervousness as the electoral cycle approaches. Investors are beginning to price in two very different scenarios for 2027: a country risk of 250 basis points if the course is consolidated, or 2,000 if it reverses, with no middle ground, according to El Cronista.

At the opposite pole of the productive map, energy and mining continue to post record results. Oil production reached 914,900 barrels per day in June, with Vaca Muerta accounting for 70% of the national total. Lithium exports in the first half rose 68.2% by volume and 185% by value, and the Rosario Board of Trade projects that mining exports could reach $41.7 billion by 2035. Foreign direct investment in the sector is accelerating: Peter Thiel, co-founder of Palantir, disclosed through a Form 13F filed with the SEC a $76 million position in Vista Energy, whose ADR trades on the NYSE, making it the second-largest holding in his fund and the only non-U.S. company in his declared portfolio. YPF, for its part, enabled the purchase of its own shares through its mobile app in partnership with Banco Santander, becoming the first company in the world to offer such functionality, days after executing a 10-for-1 split that lowered the unit price of each share.

In the week ahead, investors will be watching the EMAE economic activity print for May, the trade balance release, and the minutes of the Federal Reserve, which could confirm or rule out a rate hike in September. Locally, attention will focus on whether the government can pass the Zonas Frías Law in the Senate with the committed votes, on the evolution of country risk in the face of new dollar-linked maturities, and on the first August price data, which private analysts estimate below 2% monthly. The deeper question, however, is broader: whether the economy will continue to advance at two speeds without the impulse from natural resources managing to spill over into consumption and employment before the electoral cycle narrows the room for maneuver.

**YPF (NYSE: YPF)** — The state-controlled oil company enabled the purchase and sale of its own shares through its mobile app in partnership with Banco Santander, becoming, according to the company, the first firm in the world to offer such functionality; the move follows the 10-for-1 split executed in August. Its ADR fell 3.8% on Tuesday to $50.68 in New York despite the rally in Brent crude, dragged down by the broad deterioration in emerging-market assets.

**Vista Energy (NYSE: VIST)** — Thiel Macro LLC, the vehicle of Palantir co-founder Peter Thiel, disclosed to the SEC a $76 million position equivalent to 1% of the capital of Vista Energy, Argentina's largest crude oil exporter with operations concentrated in Vaca Muerta; the holding was the fund's second-largest position at the close of the second quarter, trailing only Amazon. Vista shares gave up 3.4% on Tuesday in New York after gaining 5.6% the prior Monday when the news became public.

**Metalfor (BCBA: METR)** — The Argentine agricultural machinery manufacturer reported a loss of 26.484 billion pesos in the first half of 2026, versus a profit of 11.87 billion in the same period a year earlier, with equipment production collapsing 78% to 95 units; the company signaled to the CNV a "significant" structural adjustment during August in the face of the closure of bank credit lines and supplier restrictions.