Argentinean companies involved in international trade are increasingly turning to commercial loans in US dollars to avoid the high interest rates implemented to combat inflation in the country.

US dollar debt in private companies grew by 8.9% (US$590mn) in August, compared to a 0.6% rise in Argentine peso loans. In the first eight months of the year; US dollar financing increased by 148% (US$4.31bn), according to a monthly report by Argentina’s central bank (BCRA).

Foreign currency loans in the country have now exceeded US$7bn, a number not seen since July 2012. In February 2014, they were at US$3.5bn, their lowest level on record.

But according to experts, this rise is not worrisome – yet. “Despite the sharp rise, private dollar debts are still very small as a share of the total economy and shouldn’t cause too much of a concern for overall financial stability,” Edward Glossop, Latin America economist at Capital Economics, tells GTR.

“Of course, if this pace were to continue, it would pose a problem for financial stability. A drop in the currency would raise the local currency value of dollar-denominated debts. That could potentially cause problems in some companies or sectors that have heavily borrowed in dollars and do not have a US dollar revenue stream. As things stand, though, we wouldn’t be too concerned, but it’s something worth keeping an eye on.”

He explains that the reason the increase is not yet concerning is that US dollar debt in Argentina is relatively low both in the public and private sector, so “this increase in private sector dollar debt, while large, is from a low base”.

Meanwhile, foreign currency reserves dropped by US$1.36bn in August, standing at US$31.15bn at the end of the month. According to the BCRA, this is due not only to the growing demand for US dollar loans, but also to the placement of sovereign debt on the local market, which the Treasury then used to meet its US dollar debt maturities, and to the release of foreign currency to supply the foreign exchange market.

“While dollar debts for the government have increased too following the issuance of the US$16bn bond earlier in the year, this is still not a risk to broader financial stability,” Glossop says.

Argentina returned to capital markets in April 2016 after renegotiating its debt with sovereign bondholders. Now the country is returning to a normal use of such financing instrument: in August, Banco de Inversión y Comercio Exterior (Bice) launched an SME financing programme funded entirely through the capital markets, and today collective deposit agent Caja de Valores announced its full Swift connectivity, meant to enhance the country’s capital markets revitalisation.