Thanks to sweeping spending cuts, President has managed to bring in his country down from a monthly 25% in December 2023 to below 3% now, according to official data published by the country’s INDEC statistics agency.
And yet, the in Argentina is , forcing the libertarian leader to make another controversial proposal to the public.
He’s called on his fellow citizens to spend their cash dollars squirreled away in mattresses and foreign bank accounts, long held by Argentines as a hedge against decades of economic turmoil.
Last week (June 5), Milei’s government sent a bill called Fiscal Presumption of Innocence to Congress, declaring that the law ensures that there will be no more persecution of those Argentines holding undeclared dollars.
The measure widens a tax amnesty scheme rolled out last year which already lured tens of billions of dollars back into circulation.
During Milei’s 2023 presidential election campaign, his supporters marched through the streets of Buenos Aires waving oversized dollar bills featuring their candidate’s face. Milei himself called the Argentine peso “worth as much as shit,” initially pledging to replace it with the US dollar as legal tender once he’s elected.
Today, is back on the agenda, but in a different form. This time, it’s not about switching the national currency, but about integrating the US dollars Argentines have been stockpiling at home into the formal economy.
Dollars ‘under the mattress’
The INDEC agency has estimated that Argentinians have about $271 billion (€234 billion) hidden away, money that is colloquially referred to as “dolares del colchon,” or mattress dollars. The exact amount is unknown, because the money is essentially undeclared.
People began stockpiling these dollars during Argentina’s prolonged periods of hyperinflation, which gripped the country until the end of 2023. Having access to US dollars in cash — or being able to receive and withdraw dollar funds — allowed people to sidestep skyrocketing peso prices by taking advantage of favorable exchange rates.
In Argentina, dollar cash reserves became a kind of financial life insurance.
Eugenio Mari, chief economist at the Buenos Aires-based libertarian think tank Fundacion Libertad y Progreso, finds this behavior perfectly rational.
Speaking to DW, he said that for decades Argentines have tried to “protect themselves from inflation and from government overreach,” meaning many used part of their income to buy dollars and kept them out of circulation.
But saving in dollars also meant making consumption sacrifices and spending less overall.
Cash dollars for economic recovery
Now, President Milei wants to change that engrained behavior by convincing Argentines to bring the hidden dollars back into the monetary system for the benefit of the broader economy.
The government argues that inflation has been tamed — at least for the time being — creating the right moment to release the hoarded cash.
But trust in a currency can be destroyed quickly, while rebuilding it takes much longer. So it’s still unclear whether Argentines are willing to monetize their “mattress dollars” in sizeable amounts.
In his effort, Milei is counting on deregulation and the removal of tax burdens to encourage them. Some even say the president is banking his political future on the scheme, which may come to be seen as a test of people’s trust in his economic policy.
So far, the plan is progressing slowly, daily newspaper Clarin wrote last week.
‘Fiscal innocence’ bill
Technically, Argentinians are required to report any foreign currency holdings. But the law has never been fully enforced.
Milei’s bill guaranteeing fiscal innocence to offenders was a clever move, says economist Mari.
“The removal of reporting requirements to the tax authority makes transactions easier and reduces the risk of citizens being pursued by the state, especially by tax authorities,” said Mari.
Since Javier Milei took office in December 2023, many economic indicators have improved. Inflation has dropped significantly, poverty is declining, the government has posted budget surpluses, and the economy is growing.
According to recent World Bank forecasts, Argentina’s economy is expected to grow by 5.5% this year, with another 4.5% projected for next year.
However, have soared, due largely to the rollback of state subsidies and the strengthening of the Argentine peso.
Dollarization through the backdoor?
Thousands of Argentines, meanwhile, are crossing borders into Chile, Paraguay, or Brazil to shop more cheaply, as the stronger peso is giving them a more favorable exchange rate.
Hernan Letcher, director of the Centro de Economia Politica Argentina (CEPA) in Buenos Aires, believes Milei’s aim with his dollar monetization plan is to “inject more dollars into the government’s currency exchange system,” which for him is “essentially a foreign exchange policy measure.”
Nau Bernues, a financial expert and the CEO of Quaestus Asteriscos — a firm specializing in the financial system and investments — believes the government wants to “go even further.” The plan is to make the dollar a “more transactional currency” that would allow people to “buy not only an apartment or a car, but also an appliance or even a cookie at a kiosk.”
“It’s doing everything possible to ensure that there are more and more dollars. If that happens with constant pesos or no issuance, the exchange rate should appreciate,” Bernues told the news agency Noticias Argentinas last week.
He noted that Milei’s economic team was “constantly proclaiming” that the dollar could fall from currently about 1,180 pesos per greenback to 1,000 pesos.
But he personally is skeptical about Milei’s “ambitious” plan, arguing that the dollars under the mattress are people’s “insurance, perhaps their life savings,” which they won’t touch for anything, “except if they make it much easier to purchase land, real estate and assets that the average Argentine assigns a certain amount of protection.”
This article was originally written in German.
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