Why Javier Mille, a hard-right libertarian, wants to dollarize Argentina’s economy

With inflation hitting new highs — 124 percent a year — and yet another devaluation of the peso — nearly 20 percent — in August, Argentina may never wake up from its economic nightmare. In this context, the emergence of anti-establishment candidate Javier Milei, who preaches economic shock measures, came as little surprise to many observers.

A herald of „libertarian” capitalism imported from America, with the aim of reducing the role of the state to a minimum, this former economist became a media animal, winning overwhelmingly in the August 13th „open primaries” – essentially nationwide polls to decide each. The party’s candidates – organized ahead of the first round of the presidential election on October 22. With 29.86 percent of the vote, well beyond what any poll predicted, Miley defeated both right-wing candidate Patricia Bulrich. -wing Juntos Por El Campio, and Peronist candidate and incumbent Finance Minister Sergio Massa.

Read moreMiley, a far-right populist, won Argentina’s presidential election

Since then, the proposals of this extreme candidate – for example, he wants to put an end to the political „caste” that he compares to rats – has taken center stage: the central bank and eight ministries (including those. Health and Education), review the liberalization of abortion (obtained by Argentine women in 2021) and repeal all laws related to environmental protection. But ditching the peso in favor of the dollar is his flagship project — „dollarization” — which has been the subject of endless debate.

Rejection of the political class

„Given the dismal record of the previous two presidencies, the speech of Mauricio Macri and Alberto Fernandez, Javier Mili, who wants to be the candidate who will break with Argentina’s ill-governing elites, has credibility and substance,” Gaspard Estrada, executive director of Science Poe’s Political Observatory for Latin America and the Caribbean (OPALC). explained. „In my view, Javier Mili’s proposals have attracted the interest of certain segments of the public.”

Indeed, since the presidencies of liberal Mauricio Macri (2015-2019) and center-left Peronist Alberto Fernández (2019-2023), the combined effects of inflation, devaluation, the Covid-19 pandemic and budget deficits have pushed the country’s poverty. The ratio is more than 30 percent to 40 percent.

So when Miley brandishes a chainsaw, or raises 100-dollar bills to her own face, promising to cut government spending, she inevitably draws some sympathy in the face of a disoriented political class with no concrete answers. Argentina needs to offer people a way out of the endless economic crisis.

Is that even possible?

Since he became a favorite, the former economist has moderated his plan somewhat. Dollarization then became a „free competition system of currencies” in which the dollar would eventually win out over the peso.

For most economists, this plan holds no water. Like many of his colleagues, Eduardo Levi Yeyati „Dollarization usually requires a share of liquid dollars to replace the monetary base,” he believes. According to Yeati, Argentina „has approximately $20 billion to $25 billion in international reserves”, but „its central bank has recently recorded negative net reserves”.

„Official dollarization will require very substantial debt,” he wrote.

Borrowing in international markets is impossible for an Argentine. The IMF, which has played a central role in Argentina’s political and economic life for at least a quarter of a century, has made his concerns known.

„Dollarization is not a substitute for sound economic policies,” IMF spokeswoman Julie Kozak told reporters on September 28.

For economists around Miley, such as Emilio Ocampo, who would take over the direction of the central bank in the event of the election of a radical liberal candidate, this is not an issue. According to him, „dollarization has already been done” because, according to data from the central bank, Argentina has almost 245 billion dollars „under the mattress” – that is, in cash or in foreign accounts – despite a very severe foreign exchange. Restrictions.

„Argentinians have already chosen their currency,” said the candidate, never tiring, referring to Argentinians’ frenzied race to convert every last peso into dollars.

The dream of dollarization

Argentinians, spurred on by dollarization, seem to have forgotten that an earlier experiment of that kind ended in unprecedented failure in 2001: a bank collapse, bloody riots, looting of people’s savings and an explosion of poverty.

In the 1990s, to correct hyperinflation that reached 2,000 to 3,000 percent a year, President Carlos Menem succeeded in establishing the „uno por uno” exchange—one dollar for one peso. Argentinians called this inflation-free decade „pizza and champagne,” and it’s still remembered as a time of prosperity, especially among the middle class, who suddenly found themselves richer in dollars.

Read moreArgentinians suffering from an inflationary crisis are resorting to any means necessary to stay afloat

Dollarization as a solution to the crisis has not had much success in Latin America either. Across the continent, three countries followed suit: Panama in 1904, Ecuador in 1999, and El Salvador in 2000.

Economic journalist Romaric Godin However, unlike Argentina, „the economies of dollarized countries are often small,” and in the case of El Salvador and Ecuador, these two countries can rely on a steady flow of dollars from oil exports (in the case of Ecuador ) and remittances from immigrants living and working in the United States.

Estrada added to FRANCE 24 that „the Ecuadorian experience shows that dollarization is not a tool to solve the problems of emerging economies in Latin America”.

„And what’s more,” he said: „It loses the monetary policy of the Argentine state, because it depends on the decisions of the United States.”

But these technical arguments are unlikely to deter Argentina from dreaming of dollarization. According to the latest polls, the finance minister who could face Mili in the second round of the presidential election has nothing but tried and tested recipes to run the printing press and increase the budget deficit.

„This is an election about change, and the question is to know which candidate will have the monopoly on change that promises Argentina,” Estrada said. „One of the main criteria for the Argentinians to choose their option is the economy, and the willingness to change the economic policy. From this point of view, Javier Mille has the trump card to win the second round. That.”

This article has been translated from French.