Determinants of provincial debt restructuring in emerging economies: the critical role of external credit in Argentina (1996–2023)

Subnational borrowing has become an increasingly important source of finance in emerging economies. Episodes of subnational debt distress have been comparatively rare, with Argentina being a notable exception. Why did Argentine provinces repeatedly restructure their debts between 1996 and 2023? Using pooled and panel logit models, we show that foreign-currency debt (i.e. instances in which assets and revenues are denominated in domestic currency, but liabilities and debt service obligations are in foreign currency) is the primary predictor of restructuring events. These findings challenge traditional approaches to fiscal federalism, which emphasize fiscal autonomy and lower dependence on federal transfers as key determinants of subnational solvency. Instead, the evidence aligns more closely with a political-economy perspective stressing macroeconomic coordination problems within federations. To connect these mechanisms to institutional design, we review Argentina's provincial public credit framework and show that it lacks specific tools to manage foreign-exchange risk in subnational borrowing.