Mercado Libre’s Stock Plunge Highlights Debt Crisis Impact in Argentina

Original article: El desplome de Mercado Libre revela el impacto de la crisis de deudas en Argentina

Shares of the company plummeted 15% in a week after it was revealed that one in four Mercado Pago clients cannot repay their loans.

Economist Alejandro Bercovich, through the outlet Se Viene, warned that Mercado Libre’s recent performance on the Nasdaq faced a harsh penalty from investors due to rising delinquency rates in its financial division. The corporation had to double its reserves in light of the risk of defaults in Argentina, where the lending business has become the main source of profit for businessman Marcos Galperín’s holding, far exceeding the volume of its original sales platform.

«Galperín has acknowledged the impact of client delinquency on Mercado Pago, as one in four customers is unable to meet their credit payments,» Bercovich explained. According to the analyst, the company is dealing with a delinquency rate surpassing 20%, which necessitated a provision for bad debts amounting to $3.8 billion, creating a «hole» in its financial statements that did not go unnoticed by the financial markets.

Although Mercado Libre is a giant with a presence in Mexico and Brazil, it generates its highest profit margins in Argentina due to the high interest rates it charges. However, this lending model has begun to show cracks due to local users’ inability to repay, leading investors to offload their shares (MELI) throughout the week.

Bercovich also highlighted the contradictions of the current economic model, pointing out that the company continues to receive state benefits while consumption declines, criticizing that «it continues to pocket subsidies of $81 million from the Knowledge Economy Law,” adding that “there’s money for that against a net income of 600 million in Argentina, where it makes the most margin due to charging the highest rates.»

This 15% drop in the company’s value occurs within a context where the financial business now represents 15 times more than the traditional Marketplace shipping boxes. The transformation of the company into a central financial player has made it exceedingly vulnerable to the economic health of Argentinians, who are now seemingly reaching the limits of their ability to incur debt for everyday expenses.

The collapse of the stock in the United States reflects the skepticism of large investors regarding the sustainability of collecting crippling interest rates in a market with high delinquency. While the company attempts to downplay the impact by assuring that «the best is yet to come,» the data on bad debts suggest that the e-commerce giant is bearing the costs of having become the largest lender to an impoverished population.

Check out more statements from the economist at the following link.