With inflation reaching new heights – 124 percent per year – and yet another devaluation of the peso – by almost 20 percent – in August, Argentina increasingly looks like it 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, came as little surprise to many observers.
The herald 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 “open primaries” of August 13 – essentially a nationwide poll to determine each party’s candidates – organised before the first round of the presidential election, which will be held on October 22. With 29.86 percent of the vote, Milei achieved a result beyond anything that any poll had predicted, beating both Patricia Bullrich, the candidate for the right-wing Juntos por el cambio, and the Peronist candidate, and current finance minister, Sergio Massa.
Since then, the proposals of this overbearing candidate – who wants, for example, to put an end to the political “caste”, who he compares to rats – have taken centre-stage: abolish the central bank and eight ministries (including those of health and education), review the liberalisation of abortion (obtained by Argentinian women in 2021) and abolish all legislation on environmental protection. But it’s his flagship proposal to ditch the peso in favour of the dollar – “dolarizacion” – that has become the subject of endless debates.
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 who would have governed Argentina badly, has credibility and substance,” explained Gaspard Estrada, executive director of Sciences Po’s Political Observatory of Latin America and the Caribbean (OPALC). “From my point of view, it’s because of this that Javier Milei’s proposals have drawn the interest of some parts of the public.”
Indeed, after the presidency of liberal Mauricio Macri (2015-2019) and that of centre-left Peronist Alberto Fernandez (2019-2023), the combined effects of inflation, devaluations, the Covid-19 pandemic and budget deficits have pushed the country’s poverty rate from 30 percent to more than 40 percent.
So when Milei brandishes a chainsaw as he promises to cut state spending, or when he flourishes giant 100-dollar bills bearing his own face, he inevitably attracts some degree of sympathy in the face of a disoriented political class that no longer has any solid answers to offer Argentinians a way out of an endless economic crisis.
Is it even possible?
Since he became the favourite, though, the former economist has moderated his project somewhat. Dollarisation has subsequently become a “system of free competition of currencies” 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 “dollarisation usually requires a stock of liquid dollars to replace the monetary base”. According to Yeyati, “this amounts to roughly $20 billion to $25 billion in international reserves” in Argentina, but “its central bank has recently posted negative net reserves”.
“Official dollarisation would require a very substantive loan,” he wrote.
Borrowing on international markets being a priori impossible for an Argentina constantly on the verge of default, this promise from the anti-elite candidate might leave some scratching their heads. The IMF, a key player in Argentina’s political and economic life for at least a quarter of a century, has made its concerns known.
“Dollarisation is not a substitute for sound macroeconomic policies,” IMF spokesperson Julie Kozack told reporters on September 28.
For the economists around Milei, such as Emilio Ocampo, who would take over the direction of the central bank in the event of the ultraliberal candidate’s election, it’s a non-issue. For him, “dollarisation has already been done” de facto as, according to central bank data, Argentinians have nearly 245 billion dollars “under the mattress” – that is to say, held in cash or in foreign accounts – despite fairly strict foreign exchange controls.
“The Argentinians have already chosen their currency,” the candidate never tires of saying, alluding to Argentinians’ frantic race to convert every last peso into dollars.
Dreaming of dollarisation
Tempted by dollarisation, Argentines seem to have forgotten that the previous experiment of that sort ended in 2001 in an unprecedented debacle: a banking crash, bloody riots, the plundering of people’s savings and an explosion of poverty.
In the 1990s, to remedy a hyperinflation that had reached 2,000 to 3,000 percent a year, President Carlos Menem succeeded in establishing “uno por uno” convertability – one dollar for one peso. This inflation-free decade, which Argentines have dubbed “pizza and champagne”, is still remembered as a period of opulence, notably for members of the middle class, who found themselves suddenly rich in dollars.
Dollarisation as a remedy for crisis has not met with a great deal of success elsewhere in Latin America either. Across the continent, three countries have trod this path: Panama in 1904, Equador in 1999 and El Salvador in 2000.
Economic journalist Romaric Godin notes, however, that unlike Argentina, “the economies of dollarised countries are often small”, and that in the case of El Salvador and Equador, these two countries can rely on a stable flow of dollars from oil exports (in the case of Equador) and remittances from emigrants living and working in the US.
Estrada also told FRANCE 24 that “the Equadorian experience shows that dollarisation in itself is not an instrument to solve the problems of an emerging economy in Latin America”.
“What’s more,” he said: “This deprives the Argentine state of a monetary policy, as it will be dependent on the decisions of the United States.”
But these technical arguments are unlikely to dissuade Argentinians from dreaming of dollarisation. And the finance minister, who according to the latest polls could face Milei in the second round of the presidential election, has nothing but tried-and-tested recipes to suggest: 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 a monopoly on a change that will reassure Argentines,” Estrada said. “One of the main criteria for Argentians to make their choice on is the economy, and the will to evolve and to change economic policy. From this point of view, Javier Milei has the trump card to win the second round if it should come to it.”
This article has been translated from the original in French.
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