The presidential campaign is in full swing in Argentina. The country beckons relocates from Russia with the possibility of obtaining citizenship fairly quickly. Many of them will probably be happy that Argentina is discussing the possibility of replacing the national currency with the US dollar to stabilise the economy and combat high inflation. The candidate who puts forward these ideas even received the majority of votes in the primaries. However, not everyone is in favour of abandoning the peso.
Argentina continues to campaign for the country’s presidential election. Three candidates from different political forces are running in the race for the elections to be held in autumn.
However, right-wing libertarian Javier Mealey has come out on top following the primaries. “Scandaliser and plagiarist, ‘anarcho-capitalist’ and ‘paleolibertarian’, opponent of abortion and supporter of free love.”
The primaries are held to determine the candidates who can run in the elections, eliminating those who will receive fewer votes. A member of the country’s parliament, an economist known to many as a television commentator, Miley favours doing away with the Central Bank as an institution and using the dollar as currency instead of the Argentine peso. After 96% of the votes were counted in the preliminary election, the candidate received 30% of the popular vote. However, as The New York Times notes, opinion polls predict that the candidate will receive only 20 per cent because of the radical nature of his ideas.
Meanwhile, the idea put forward by Miles to replace the national currency is not new, and was recently discussed by experts at the libertarian Cato Institute in Washington. “Whether right-wing or left-wing, advocates of monetary sovereignty miss the main point of dollarisation, which is to protect the purchasing power of ordinary people from the excesses of chronically profligate politicians and often subservient – or simply incompetent – central bankers. In fact, it is not surprising that, along with partially dollarised Peru, the three fully dollarised countries in Latin America – Panama, Ecuador and El Salvador – have had the lowest inflation rates in the region over the past 20 years,” noted a recent paper by economists Gabriela Calderon de Burgos and Daniel Raisbeck.
Among other arguments made by the paper’s authors: switching to “Uncle Sam’s” currency would introduce severe fiscal constraints into the economy. “Working together, dollarisation and a regime of fiscal discipline will lower interest rates and limit the future size of the debt,” the authors explain.
Argentina, the country that many Russians are now choosing as a place to relocate, has a really large foreign debt. In March, the country’s public debt was 80.3% of nominal GDP and is still growing. In addition, one of the country’s main problems is high inflation, which reaches the level of 100%.
The International Banker recalls that inflation in the country rose sharply after the 2018 crisis caused by the crash of the peso. Shortly afterwards, President Mauricio Macri’s government went to negotiate a $57 billion financial aid package from the IMF in exchange for the country agreeing to lower inflation. “But inflation continued to rise even higher as the country struggled to service its debt,” the publication wrote.
The drought has also been a problem for the economy, hitting hard Argentina’s traditional exports: soybeans, corn, and wheat. The Buenos Aires Grain Exchange (BAGE) has already lowered production estimates for 2023 several times this year. “Given that Argentina is the third-largest exporter of corn and the largest exporter of soybean oil and soybean meal, the global impact of these historically low forecasts could be seismic, as consumers around the world would suffer shortages,” writes International Banker.
Dollarisation will not help
Whoever wins the autumn presidential race, this candidate will have to solve a lot of economic problems. As economic commentator Mark Sobel notes on the Independent Forum’s Monetary and Financial Instutions portal, making the dollar the national currency is unlikely to help the economy. “Dollarisation is a potentially dangerous ‘no exit’ strategy. It could sow the seeds of a huge contraction and collapse, diverting attention away from the hard work of economic recovery. Under dollarisation, Argentina’s growth will depend on current account surpluses and securing capital inflows. This could be feasible with strong global growth, high commodity prices, attractive investment, a robust rule of law and an undervalued currency,” the author explains.
Yes, the introduction of the dollar could curb inflation, the author writes, but “the absence of an exit policy from dollarisation could well lead to a much more serious economic downturn and collapse”.
The presidential election is a couple of months away, but the country’s economic problems need to be addressed now. Realising that the current government may not be in power for long, Mealey is building up his own political weight and negotiating with the IMF, assuring IMF officials that if he becomes head of state, there will be no default and the country will fulfil all its obligations to the international organisation. However, the IMF is meeting not only with him, but also with his rival in the presidential race, Patricia Bullrich, who heads the Together for Change movement. She previously served in the government as minister of security and then of economy, and is now second to Miley in opinion polls. It’s worth noting that for her rival, Bullrich found words of approval. “I want to congratulate Javier Milay for a wonderful vote. He contributed to the debate, he, like us, states that the state should not be a cave for government youths.”
By “government youths” Bulrich means the ruling Socialist Party, which the right-wing of all stripes accuse of too much social spending and high inflation. In power today are the “Peronistas,” the political heirs of 20th-century Argentine leader Juan Peron, who combined leftist and nationalist views in his ideology. Peron’s ideas still hold a part of the minds of Argentine society. Many people far from politics know Peron thanks to his beautiful wife Evita, played in the film of the same name by American singer Madonna. The film is remembered for the song “Do not cry for me Argentina”. It contains the words “Though it seemed to the world that this was all I desired. They’re illusions, they’re not the solutions they could have been.” Today, it is up to the winner of the election to make sure that his or her decisions do not become illusions.