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ECONOMY | 07-09-2023 13:13

Argentina’s dollarisation is a ‘bad idea’, top economists say

Dollarising Argentina’s economy — as proposed by presidential candidate Javier Milei — is a bad idea that will do little to solve the country’s long-standing fiscal problems, three of Latin America’s most-renowned economists said.

Dollarising Argentina’s economy — as proposed by presidential candidate Javier Milei — is a bad idea that will do little to solve the country’s long-standing fiscal problems, three of Latin America’s most-renowned economists said.

Making the dollar legal tender in Argentina as a way to introduce fiscal and debt management discipline would be a “quick fix” that wouldn’t solve “structural problems” such as reigning in public finances, Guillermo Ortiz, former governor of Mexico’s Central Bank, said in a press call with reporters on Wednesday. Argentina also doesn’t have the dollars needed to undertake such a policy, he said.

“It makes absolutely no sense to go in this direction,” Ortiz said. 

Milei, a radical libertarian who appears as frontrunner to win Argentina’s Presidency after a surprise primary victory last month, has proposed replacing the peso with the US dollar in the South American economy as a way to tame one of the world’s fastest inflation rates.

In an August 16 interview with Bloomberg News, he pledged to close the nation’s Central Bank and make a bold fiscal adjustment that would boost the reputation and credit profile of the crisis-prone economy.

“The problem of dollarisation is that it does not cure the disease it’s supposed to cure and therefore is a bad idea,” Andrés Velasco, a former finance minister of Chile and current dean of the School of Public Policy at the London School of Economics, said on the same call.

Arminio Fraga, who led Brazil’s Central Bank between 1999 and 2003, added that Argentina’s current situation is “very complicated” and changing the peso for dollars as official currency just “sounds like a magic solution.”

Ortiz, Velasco and Fraga are part of the Group of Thirty, a body that gathers current and former policymakers, and led a report on Latin America comparing its economic performance against other regions. Slow and even negative productivity growth, and investment rates below Eastern Europe and Asian peers are key parts of the region’s shortcomings, according to the report, released on Wednesday.

by Juan Pablo Spinetto, Bloomberg

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