Few regions in Argentina symbolize the collapse of the Peronist model as clearly as La Rioja. This remote and impoverished province has depended for decades on subsidies distributed by the federal government to keep a heavily state-run economy functioning. In La Rioja, two out of every three workers are public employees, there is little private activity, and the productive sector is dominated by companies controlled by the provincial government itself.
Until the election of Javier Milei, the central government of Argentina regularly transferred funds to the provinces through so-called “discretionary transfers,” non-compulsory funds allocated on political grounds, which in turn fed clientelist networks.
With Milei’s election in 2023, this dynamic ended abruptly. His radical fiscal adjustment policy, focused on eliminating the deficit and restoring budgetary balance, led to a 98 percent cut in discretionary transfers to the provinces. Deprived of funds and without access to debt markets, La Rioja defaulted in February 2024.
In response, Governor Ricardo Quintela, a Peronist loyalist and vocal opponent of Milei’s liberal reforms, launched a desperate measure: the creation of a local quasi-currency, issued under the technical name Bono de Cancelación de Deuda (BOCADE), commonly known as the Chacho, after the local caudillo Ángel Vicente “Chacho” Peñaloza. With an official 1:1 parity with the Argentine peso, the Chacho is formally supposed to have the same value as one peso.
Starting in August 2024, the Chacho was used to pay around 30 percent of public employee salaries, and could be used in participating businesses and to pay local taxes. The government did not force merchants to accept it, but offered incentives for them to do so.
Although the measure initially triggered a spike in demand, with roughly half of purchases in some shops made in Chachos during the first week, its acceptance quickly dwindled, and the currency’s value deteriorated even further outside the province. Restrictions on use have emerged, along with parallel markets and stores that accept Chachos only for a percentage of the total purchase or give store credit instead of change. By the end of 2024, the Chacho’s circulation was increasingly minimized, with Governor Quintela complaining that most merchants wouldn’t accept it.
Despite considering the currency a “deceptive and harmful” measure, Javier Milei refused to intervene, as the Argentine President strongly believes in competitive federalism. Milei’s idea is that provinces must be free to determine their fiscal, budgetary, and even monetary policies, and at the same time bear the consequences of those decisions. The state should not be paternalistic — even if that means letting municipalities default on their debts.
Milei envisions a structure in which subnational jurisdictions compete with one another, adjusting taxes, regulations, and public services to attract capital investment and talent.
Argentina already experimented with a wave of quasi-currencies in the 1980s and early 2000s, when more than a dozen provinces including La Rioja resorted to local issuances of quasi-currencies during austerity crises. At the time, provincial bonds ended up being absorbed by the federal government and exchanged for pesos, a path Milei has vowed not to repeat.
There is concern that the Chacho could have inflationary effects, either directly or indirectly. According to economist Marcelo Capello of Fundación Mediterránea, if other provinces follow La Rioja’s example and these quasi-currencies are issued in quantities that exceed the province’s fiscal revenue capacity, this risk is real.
Furthermore, Capello warns of the risk of a “fiscal war” between the provinces and the national government if this kind of issuance spreads, undermining the national effort to contain inflation by allowing provinces to bypass fiscal adjustment and issue disguised money.
Quintela is trying the last breath of a model that survived for decades, while Milei is forcing a confrontation with reality: either the provinces reform, or they collapse without a safety net.
The Chacho experience reopens a recurring debate in the United States about bailouts. As economists Thomas Sowell and Milton Friedman warned over the years, the federal government should not rescue states from their debts, as this distorts the market and encourages government irresponsibility.
Over the past decade, US states with chronically unbalanced finances—notably Illinois, California, and New York—have benefited from implicit or explicit federal support mechanisms, especially during the pandemic. Such interventions dilute the incentives for sound governance by softening the impact of poor local management.
La Rioja’s case is a reminder that a functional federation requires competition between jurisdictions, not the mutualization of losses.
Federal bailouts for states do not save economies. They only destroy incentives and lull the problem to sleep, offering a “band-aid” solution paid for by all taxpayers.
Argentina is now trying to reverse this logic by removing the federal safety net for poor local planning. The United States should follow the same path.
