Lost to the river. Argentina these days is little less than economic hell, political purgatory and, according to them, soccer heaven. But if something defines the country, it is that it lives oppressed by the dictatorship of inflation, a yoke that goes back decades. It has to do with the permanent populism of his political class, the desire for continuous revolution to mask corruption and self-deception in the management of public accounts that never add up. No one knows for sure when the Argentine machine became one of crushing investors, businessmen and workers to equalize them in poverty and, as an act of pure survival, in the submerged economy. In what there is a certain consensus is that the root of Argentina’s evil lies in its currency and the use of its monetary sovereignty.
Since last Sunday, a large sector of the Argentine population has voted that they can no longer. They call them outraged but in reality they are fused. Javier Milei’s ‘La Libertad Avanza’ coalition won the PASO elections (prior to the October presidential elections) with a harsh and populist speech with libertarian and ultraliberal recipes to “end the political caste”, the same motto that promoted Pablo Iglesias in Podemos and they took him on the wings to Galapagar and Moncloa. But the real reason why Milei has become virtual president, according to polls, is his promise to end inflation with an extreme solution that all Argentines understand. It is dollarization.
Now, what does it mean to dollarize the Argentine economy? What consequences and risks does it have? And above all, why do it now? Argentina is on the brink of another hyperinflation with three-digit CPI growth (100%) LIKE THE ‘Rodrigazo’ of the 70s or in the Presidency OF Raól Alfonsín in the 80s who broke all records with 5,000% annual. It is a fact that it will enter there after the 22% devaluation of the peso dictated by the current government of Alberto Fernández and Sergio Massa last Monday after the elections. But the implementation of dollarization has the potential to curb that inflation, albeit with dire side effects. It’s like removing oxygen from a room to put out a fire and expect everyone to continue breathing normally. However, Argentina has few options now if they don’t want the whole building to burn down.
What does dollarizing mean?
There are several ways to dollarize. Ecuador, Zimbabwe, Panama or El Salvador did so, although with different results, but the ‘Argentine-style’ version supposes a progressive introduction in which the peso and the dollar coexist co-officially. In this circular way, you can circulate freely and legally. Milei’s party accepts the proposal of the economists Emilio Ocampo and Nicolás Cachanosky, fathers of the idea, to automatically recover price stability. It means giving a letter of nature to a very Argentine reality, in which the population does not trust its currency and resorts to the black market (blue dollar) to save, protect itself from inflation and to avoid losing social benefits. It happens that the free circulation of dollars is not legal today but its use as a store of value is normalized. That is why Argentina is one of the countries in the world that has the most dollars outside the US. After last Monday’s devaluation, the official exchange rate was set at 350 pesos per dollar, but the US currency at B has gone on its way to 800 and the central bank raised interest rates from 97% to an impossible 118%. .
Dollarization also supposes an irreversible change by which Argentina renounces its monetary sovereignty, removing the powers of issuance of currency from the central bank BCRA and, therefore, preventing the government in office in the Casa Rosada from cheating on the lonesome by covering the public deficits with the issuance of more pesos through the central bank. As everyone knows, or should know, this almond trick devalues the value of the currency and logically prevents Argentina from seeking the resource of issuing debt in the markets. The last time that happened on a recurring basis was in the 1990s and the weight held steady. With the corralito of 2001 and the loss of parity 1 to 1 with the dollar that Argentina artificially maintained, everything blew up again.
The key to the dollarization proposal is that Argentines are going to have certainty about the evolution of the prices of the goods and services they consume, as well as the salaries they receive. It will be the market and not political intervention that sets prices based on supply and demand. A priori it is a measure that benefits the middle and lower classes that until now do not have the ability to save in dollars and avoid the plucking that inflation exerts on their purchasing power. Until now, only the political class, the richest and those who earn income in foreign currency have been able to avoid the infinite fall of the peso. The mirror in which Argentines look with terror is the Venezuela of Nicolás Maduro, where hyperinflation has destroyed its economy, will reduce the largest wave of poverty in Latin America in decades and anomalies the emigration of millions of Venezuelans.
