By Monica Showalter
Argentinians go to the polls today, and one can only hope that conservative/libertarian candidate Javier Milei wins Argentina’s presidency in a knockout, with enough votes to win free and clear without having to go to a runoff in November. We all know the reason why: His rabid, determined, enemies will have that much less time to plot against him. It might happen.
But it’s a nailbiter.
According to Reuters:
BUENOS AIRES, Oct 22 (Reuters) – Argentines began voting on Sunday in a national election where a far-right libertarian leads the race, a shift in the political landscape due to fallout from the country’s worst economic crisis in two decades.
The ballot is likely to roil financial markets, set a new political and social path for the nation and impact its ties with trade partners including China and Brazil. Argentina is a major grains exporter with huge reserves of lithium and shale gas.
Oh, the doom and gloom. They weren’t subtle about what their opinions here.
Actually, a Milei victory is likely to end Argentina’s economic misery, and restore it to its rightful place as one of the world’s most prosperous countries.
Milei, who’s a Trump-like populist in touch with popular sentiment, but with a far more libertarian streak, is roping the voters in, particularly the young ones, with his vow to dollarize Argentina. That would require Argentina just use the American dollar as its currency and flush all those wretched, devalued pesos it has to use now straight down the toilet.
Dollarization would get rid of the peso by exchanging all of them for dollars and then do all its financial transactions in U.S. dollars. Like Panama, they can change the name of the pieces of paper bearing George Washington’s visage to something like the Balboa or maybe the San Martin if they like. But what their government won’t be able to do is print up another batch of them, fueling monster inflation. They wouldn’t even be able to try to do it like they can with the peso, they’ll instead have to live within their means like normal bank account holders, balancing their checkbooks each month, and that will be that.
That’s too much for a lot of leftwing intellectuals and academics, though, who are leading a charge against dollarization, claiming it wil be a disaster.
Steve Hanke, a Johns Hopkins University economics professor, has pointed out what a lot of hooey he’s hearing:
What is somewhat surprising is that a string of foreign economists and so-called financial experts have weighed in and fanned the flames of anti-dollarization propaganda. To name just a few of the notables: Robin Brooks, Arminio Fraga, Guillermo Ortiz, Mark Sobel, Alejandro Werner, and Iván Werning. Some have even argued that a debt default, not dollarization, is the solution to Argentina’s problems. Others lacking any originality have taken to paraphrasing Ecuador’s former left-wing president Rafael Correa, claiming that the adoption of the dollar would be equivalent to a monetary suicide. And, to top it all off, dozens of Argentine economists have signed a letter slamming dollarization as a “mirage.” It’s clear that none of them are aware of the 96 successful cases of dollarization that have been documented by Hanke in a recently published working paper, “Historical Episodes of Full Dollarization.”
And let’s not forget the press. Here are some of the flaming horsehockey forecasts from that quarter:
Milei’s Path to Dollarization: Riddled with Doubts -Americas Quarterly
Argentina should beware the dollarisation fairy -Financial Times
Argentina’s Dollarization Is a Dangerous Delusion -Washington Post
Here’s the really disgusting one:
Argentina needs to default, not dollarise -The Economist
What?
Default is better than dollarization? What planet do these people live on? Shall we start calling these guys The “Economist”? Running out on your tab shuts out investment capital and sends investors fleeing. It drags the country into courts for years as angry investors attempt to get some kind of repayment on their government bonds, some of them making a cottage industry of it. It sure as heck leaves the local people poorer and more likely to flee. But hey, go on, default, as if Argentina of all places hasn’t already tried that again and again and again — and always ended up in a deeper hole than it started with.
Telling Argentina to default on its debt is like telling a drunk to take another swig at the Thunderbird.
Fact is, the dollarization idea is not only the only answer on the table if the country is ever to recover, it’s actually quick and easy.
Why is that? Well, Hanke has the answer to that as well:
The first fact that needs to be understood is that the Argentine people have already chosen the dollar as their preferred currency. Argentines have more than US$200 billion in greenback bills stashed away in safe-deposit boxes at banks or at home “under the mattress.” In comparison, the supply of pesos, measured by M3, is worth less than US$50 billion. Nobody in Argentina wants to hold pesos. While Argentina might not be officially dollarized, it remains the most heavily dollarized country outside of the U.S.
The short answer is they’re already doing it. It’s already in place five to one, and all they need now is for a president to sign on the dotted line.
Hanke didn’t bring this up but it could be relevant: Argentinians also have tremendous dollar assets stuff in banks abroad, particularly Uruguay. Past governments have been so concerned about this that they’ve put dollar- (not drug-) sniffing dogs on ferries from Buenos Aires to Montevideo. That makes the ratio even greater than 200 to 50, as Hanke described. Seriously, four out of five currency units in use in Argentina are in dollars, not pesos. How’s that for a voice of confidence in Argentina’s current socialist government? Those numbers make me think Milei is going to win big.
If Argentina goes to the dollar, they can bring all that money from foreign banks back home, particularly if a Milei administration put extra controls on safeguarding people’s assets from government expropriation, which has been a problem over there.
If they bring the cash back home, they’ll have massive investment capital to fix their roads, build new factories, improve their farms, restore their cities, and employ their people. More important, they won’t have the kinds of problems Russia has now that it has foolishly opted to accept oil payments from India in rupees. The Russians have begged the Indians to send their payments in yuan (they won’t or can’t use the dollar) because they can’t invest those rupees anywhere, there isn’t enough for them to buy so they just sit there, and the Indians have laughed it off and kept sending them rupees.
What a wretched problem that is for them. If they Argentines adopt the dollar as their own, they will have enormous numbers of places to put their cash, whether in their own stock market, their own bonds, American bonds or stocks, real estate, any place a dollar can be parked. They won’t have that problem Russia has.
Hanke is one of the leading authorities on dollarization and has been urging the country to take care of this business for years. It appears they are taking care of it, and it doesn’t come soon enough. Read Hanke’s article on just how important, and doable, this change would be.
If Milei is elected, and all goes well, we may see a rich Argentina again, just as it was at the turn of the 20th century, no longer living on the fumes of past glories, but once more the envy of the world.