Milei’s dollarization, a waste of time for Argentina

Buenos Aires, Sept 18 (EFE).- Argentina is debating dollarization after decades of failure to tackle inflation, which has been above triple digits throughout 2023.

The discussion comes in response to a proposal by far-right candidate Javier Milei, who is well-positioned to win the presidency in October.

Milei’s polemic plans have captured the imagination of a society tired of losing its purchasing power.

For experts, his approach is unrealistic. So much so that nearly 170 Argentine economists recently signed a public warning about the dangers of dollarization.

“It’s not a good idea and the dollars are not there, so the whole debate is abstract. (…) We are wasting time,” says Federico Poli, director of the consulting firm Sistemica and one of the signatories of the letter.

Under the banner of dollarization, the abolition of the Central Bank and putting a “chainsaw” to public spending, Milei, candidate of the movement Freedom Ahead, won first place (29.86%) in the primary elections on August 13.

The far-right candidate says he has five projects to dollarize, but at the same time rules out implementing the measure in the short term, speaking of “currency competition.”

His advisors have downplayed the possibility due to the lack of foreign currency and political support; they also have modified the proposal to abolish the Central Bank and speak of regulating it, admitting the difficulty of removing exchange restrictions due to the issued debt.

In a society that historically mistrusts the peso and uses the dollar as a savings currency and for large transactions such as real estate purchases, dollarization has taken a central position in the debate leading up to the October 22 elections.

The other main candidates reject the idea.

Patricia Bullrich, former Minister of Security of Mauricio Macri (2015-2019) and candidate of Together for Change (center-right), proposes a peso-dollar coexistence (bimonetarism).

Sergio Massa, current Minister of Economy and official leftwing candidate (Union for the Homeland), has not proposed any change.

MIRAGE

The threat of dollarization is so great that more than 170 economists from different schools have warned against it, calling it a mirage and speaking of “insurmountable obstacles.”

The main problem is that Argentina lacks the necessary dollars to save the monetary base and support bank deposits.

Obtaining the necessary funds would mean an “absurd increase” in public debt for a country whose securities are quoted at 30% of parity.

Economists understand that the “only alternative” would be to dollarize at an exchange rate so high that it would cause “a (hyper)inflationary outbreak” in a society where more than 40% of the population lives in poverty.

Dollarization would also be a violation of property rights.

Adopting it would be “disastrous,” Poli says, it would leave the country “without a basic economic intrument: monetary and exchange rate policy,” it would happen the same as at the end of convertibility.

HISTORICAL CONTEXT