Javier Milei, the “anarcho-capitalist” presidential candidate who took the lead with his Liberty Advances political coalition in August’s primaries, owes his electoral success in large part to his promise to dollarize Argentina’s economy. Disoriented by hyperinflation and rising poverty, many Argentines see the adoption of the U.S. dollar as the country’s official currency as the long-awaited solution to an economic crisis that they have struggled to escape since 2018.
With inflation reaching new heights of 124 percent a year and the peso devaluing again by nearly 20 percent in August, it increasingly looks as if Argentina will never wake up from its economic nightmare. In this context, the emergence of Javier Milei, an anti-system candidate who preaches economic shock measures, hardly surprised many observers.
A harbinger of a “libertarian” capitalism imported from the US that aims to reduce the role of the state to a bare minimum, this former economist turned media animal largely won the August 13 “open primaries” – essentially a nationwide poll to determine each party’s primary candidates – organized ahead of the first round of presidential elections, which will take place on October 22nd. With 29.86 percent of the vote, Milei achieved a result that exceeded anything any poll had predicted, beating both Patricia Bullrich, the right-wing candidate Juntos por el cambio, and the Peronist candidate and current Finance Minister Sergio Massa.
Read moreFar-right populist Milei comes first in Argentina’s presidential primaries
Since then, the focus has been on the proposals of this arrogant candidate who, for example, wants to put an end to the political “caste” that he compares to rats: the abolition of the Central Bank and eight ministries (including that of…). health and education), reviewing the liberalization of abortion (enforced by Argentine women in 2021) and abolishing all environmental protection laws. But it is his flagship proposal to abandon the peso in favor of the dollar – “dolarizacion” – that has become the subject of endless debate.
Rejection of the political class
“Given the poor record of the two previous presidencies, that of Mauricio Macri and that of Alberto Fernandez, the speech of Javier Milei, who wants to be a candidate who breaks with the elites that have misgoverned Argentina, has credibility and substance.” ” explained Gaspard Estrada, executive director of Sciences Po’s Political Observatory for Latin America and the Caribbean (OPALC). “In my view, this is precisely why Javier Milei’s proposals have aroused the interest of some sections of the public.”
In fact, the combined effects of inflation, devaluations, the Covid-19 pandemic and budget deficits have driven up the country’s poverty following the presidency of liberal Mauricio Macri (2015-2019) and that of center-left Peronist Alberto Fernandez (2019-2023). from 30 percent to over 40 percent.
So when Milei wields a chainsaw while promising to cut government spending, or holds giant $100 bills with his own face on them, he inevitably elicits some degree of sympathy in the face of a disoriented political class that doesn’t have any has more tangible answers to offer Argentinians a way out of an endless economic crisis.
Is it even possible?
However, since he was named the favorite, the former economist has toned down his plans somewhat. Dollarization subsequently became a “system of free currency competition” in which the dollar would ultimately triumph over the peso.
For most economists, this plan does not hold water. Like many of his colleagues, Eduardo Levy Yeyati believes that “dollarization usually requires a stock of liquid dollars to replace the monetary base.” According to Yeyati, “this amounts to about $20 billion to $25 billion in international reserves” in Argentina, but “its central bank recently reported negative net reserves.”
“Official dollarization would require a very large loan,” he wrote.
Since it is inherently impossible for an Argentina that is constantly on the verge of default to borrow on international markets, this promise from the anti-elite candidate could confuse some. The IMF, a major player in Argentina’s political and economic life for at least a quarter of a century, has expressed its concerns.
“Dollarization is not a substitute for sound macroeconomic policies,” IMF spokeswoman Julie Kozack told reporters on September 28.
Presidential candidate Javier Milei waves a chainsaw during a political rally in La Plata, Buenos Aires province, Argentina, September 12, 2023. © AFP – Marcos Gomez, AG La Plata via AFP
For the economists around Milei like Emilio Ocampo, who would take over the management of the central bank if the ultra-liberal candidate is elected, this is not an issue. For him, de facto “dollarization” has already happened, since, according to the Central Bank, Argentinians have almost $245 billion “under the mattress” – that is, in cash or in foreign accounts – despite fairly strict foreign exchange controls.
“Argentinians have already chosen their currency,” the candidate never tires of saying, alluding to Argentines’ frantic race to convert every last peso into dollars.
Dreams of dollarization
Tempted by dollarization, Argentines seem to have forgotten that the previous such experiment in 2001 ended in an unprecedented debacle: a banking crash, bloody riots, the looting of people’s savings and an explosion of poverty.
In the 1990s, to combat hyperinflation that had reached 2,000 to 3,000 percent per year, President Carlos Menem managed to introduce “uno por uno” convertibility – one dollar for one peso. That inflation-free decade, which Argentines called “pizza and champagne,” is still remembered as a time of plenty, especially for members of the middle class who were suddenly rich in dollars.
Read moreAffected by an inflation crisis, Argentinians are looking for any means necessary to stay afloat
Elsewhere in Latin America, dollarization as a means of combating the crisis did not have much success. Across the continent, three countries have followed this path: Panama in 1904, Ecuador in 1999, and El Salvador in 2000.
However, economic journalist Romaric Godin notes that, unlike Argentina, “the economies of dollar countries are often small” and that, in the case of El Salvador and Ecuador, these two countries can count on a stable flow of dollars from oil exports (in the case of Ecuador ) and remittances from expatriates living and working in the United States.
Estrada also told FRANCE 24 that “the experience in Ecuador shows that dollarization in itself is not a tool to solve the problems of an emerging economy in Latin America.”
“Moreover,” he said, “this deprives the Argentine state of a monetary policy since it will be dependent on the decisions of the United States.”
But these technical arguments are unlikely to dissuade Argentines from dreaming of dollarization. And the finance minister, who according to the latest polls could run against Milei in the second round of the presidential election, has only tried and tested recipes to propose: keep the printing press running and increase the budget deficit.
“This is an election about change and the question is which candidate will have the monopoly on change that will reassure Argentines,” Estrada said. “One of the main criteria for Argentinians’ decision is the economy and the desire to develop and change economic policies. From this point of view, Javier Milei has the trump card to win the second round if it comes to it.”
This article was translated from the original into French.
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