During the election campaign, Javier Milei He displayed a giant $100 bill with his face on it. His followers must have thought this was quite foreboding and they voted for him to win the election. Many economists around the world consider his remark to be devoid of technical and political basis. But the president Alberto Fernandez At the meeting last Tuesday, in the privacy of the palace, the same thing was heard that the far right had secured in the stands: “Let’s dollarize Argentina“. The photo they took together showed Fernández’s surprised face.
The anarcho-capitalist thinks: Transferring monetary sovereignty to the U.S. Treasury Department It will be a source of prosperity for a country. 40% poor and one inflation this will pierce 150% per year When he receives command qualifications. “Our calculation is that all pesos will be converted to dollars within 16 months.“, aforementioned.
Three similar experiences are known in Latin America: Ecuador, El Salvador and Panama. However, this is the first country that the Milei team showed interest in. Amidst an incessant adjustment, with hyperinflation in the background of bankrupt banks and flight capital, Ecuadorian President Jamil Mahuad Dollarization was introduced on January 9, 2000: the existing currency, the sucre, had previously depreciated by 400 percent. Twelve days later Mahuad was fired from the government for a protest where the indigenous movement and the Armed Forces came together. He left the Carondelet Palace by hiding in an ambulance.
Dollarization implemented in an economy. GDP $37 billion, relatively small. As Argentines know from experience in 1989 and 2011, deposits have been pulverized. The first year of the new model could not stop inflation, which was 90%. The economy began to normalize over the years and the cost of living began to decrease by an average of 10% annually. In this process, the import and finance sectors won.
A dependent model
HE increase in international prices raw materials, especially Oiland an unpublished remittance flow The stabilization process was facilitated by the start of sending immigrants on an unknown scale (a similar situation is happening in El Salvador, where remittances account for 25% of GDP). With the dollar entering the Central Bank’s coffers, domestic consumption and public investments increased and living conditions improved. However, the sustainability of the monetary plan depended on the international crude oil market.
Throughout the years of government Rafael CorreaEcuador appealed to the Central Bank to control low oil prices. Despite all these efforts, there was no choice but to finance the trade balance deficit with foreign debt. Successive presidencies Lenin Moreno and Guillermo Lasso They deepened this trend. The foreign exchange shortage was financed by demanding dollars from foreign banks and the International Monetary Fund (IMF) in exchange for regulation in the State and the labor market. Moreno had to face a situation social epidemic In 2019, Lasso had to bring forward the elections. Both political crises had the same economic background: almost 30% poor. Foreign debt increased from 12% to 40% of GDP. Ecuador was forced to suspend interest payments twice.
Warnings and stubbornness
“Introduction to dollarization It was traumatic and the exit would have been disastrous.“Andrés Arauz, former presidential candidate of Correismo and vice president for the last two years, warned an Argentinian radio station. “Dollarization is a monetary issue,” said Carlos Julio Emanuele, the ideologist of the Ecuadorian experience. Consulted by the Argentinian portal Online PolicyAfter the fall of Mahuad, the former Minister of Economy made a categorical statement: does not solve the problem of poverty. However, even though the weight of this country’s economy is not similar to Ecuador’s, Milei wants to continue on this path.
Experts predict that Approximately 37 billion dollars will be needed Implementing the far right’s master plan. If the Central Bank does not have anything, that amount is money. Argentina has a foreign debt of 403 billion 809 million dollarsAccording to the calculation of the consultancy firm Ecolatina, it should account for 64 percent of the far-right government’s GDP, and between 2024 and 2026 the far-right government should face maturities of more than 53,000 million, or an annual average of 17,800 million.
Despite the bankruptcy and the consensus among many economists that dollarization is neither feasible nor desirable, its supporters want: request a new loan for the estimated amount and backing bonds with publicly traded companies, especially oil companies. YPF and shares of the Sustainability Guarantee Fund, which provides financing for the payment of pensions and other expenses. Robin Brooks of the Institute of International Finance rejects this Argentinians’ savings abroad are approximately $300,000 millionReturn to the country to finance Milei’s big project. Carlos Rodríguez, advisor to the president-elect, offers a suggestion: generous whitewash Capital for the return of currencies outside the system. ““The rich will not bring their dollars back to their country.”Brooks insists.
social impact
Experts also fear the social cost this project may cause. Argentina Paid dearly to peg the currency to the dollar in the 90s. He supported it with the sale of public assets and debts. The fantasy of being part of the “first world” opened social wounds: poverty and unemployment. Everything exploded with the 2001 crisis playground. But in this country, 22 years feels like a century. There were so many shocks that the era of convertibility faded into oblivion, confusion, or an idyllic consumer past. “While it may help stabilize the economy in the short term, The consequences of dollarization are negative: The appreciation of the exchange rate, the stifling of the productive structure, a state that does not have the ability to maneuver in crises and, in the long run, half coins“says economist Claudio Scaletta.
The distance between desires and reality begins to present itself as a problem in Milei’s eyes early on. Emilio OcampoThe Prime Minister, who will take over the presidency of the Central Bank to implement dollarization, decided to turn his back on the far right, which was dissatisfied with the appointments in the Ministry of Economy. Giant $100 bills with a face on them risk favoring a party that doesn’t even have symbolic value. Milei may have to wait longer than necessary to realize his dream of a country without its own currency. Maybe this is just the dream of a man who went too far.