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In Argentina, the U.S. Dollar Could Soon Become King In Argentina, the U.S. Dollar Could Soon Become King
(2 days later)
Americans complain that inflation has eroded the value of their money, but the U.S. dollar looks lovely to the people of Argentina, where consumer prices rose 124 percent in August from a year earlier. The threat of hyperinflation has become a central issue in the presidential election on Oct. 22, which The Times has described as “a new test of the strength of the far right around the world.” The leading candidate in the race, which could go to a November runoff, is a radical libertarian who promises to bring rising prices under control by getting rid of the peso and fully dollarizing the Argentine economy.Americans complain that inflation has eroded the value of their money, but the U.S. dollar looks lovely to the people of Argentina, where consumer prices rose 124 percent in August from a year earlier. The threat of hyperinflation has become a central issue in the presidential election on Oct. 22, which The Times has described as “a new test of the strength of the far right around the world.” The leading candidate in the race, which could go to a November runoff, is a radical libertarian who promises to bring rising prices under control by getting rid of the peso and fully dollarizing the Argentine economy.
Buena idea, o mala?Buena idea, o mala?
I’ll get to the pros and cons of dollarization in a minute, but first a few words on why Argentines would even consider such a drastic step. Argentina is blessed with abundant natural resources. Early in the 20th century, it was richer than Germany or France. “Until the 1930s, the French used the phrase ‘riche comme un Argentin’ to describe the foolishly rich,” the economists Edward L. Glaeser, Rafael Di Tella and Lucas Llach wrote in the Latin American Economic Review in 2018.I’ll get to the pros and cons of dollarization in a minute, but first a few words on why Argentines would even consider such a drastic step. Argentina is blessed with abundant natural resources. Early in the 20th century, it was richer than Germany or France. “Until the 1930s, the French used the phrase ‘riche comme un Argentin’ to describe the foolishly rich,” the economists Edward L. Glaeser, Rafael Di Tella and Lucas Llach wrote in the Latin American Economic Review in 2018.
But Argentina’s economy has been stunted by disastrous economic policies and chronic political instability. There were periods of military rule, hyperinflation, defaults on external debt, protectionism and under-industrialization. Argentina has been a democracy since 1983 but successive governments, whether left- or right-leaning, haven’t managed to match neighbors such as Chile, Uruguay and Brazil in bringing down inflation and stabilizing finances.But Argentina’s economy has been stunted by disastrous economic policies and chronic political instability. There were periods of military rule, hyperinflation, defaults on external debt, protectionism and under-industrialization. Argentina has been a democracy since 1983 but successive governments, whether left- or right-leaning, haven’t managed to match neighbors such as Chile, Uruguay and Brazil in bringing down inflation and stabilizing finances.
That record of failure is written on the currency. Since 1970, Argentina has burned through several currencies: the peso ley, the peso argentino, the austral and now the peso convertible. Today there is no single exchange rate with the dollar that all residents can use. As colorfully explained recently in The Buenos Aires Herald, there is the official, or “wholesale,” exchange rate, for international trade; the savers’ exchange rate, which is supposedly for savers but is not widely accessible; and the “blue” dollar, which is essentially the black-market rate. Foreign tourists can buy pesos at yet another rate, the M.E.P., short for Mercado Electrónico de Pagos. There are even temporary exchange rates, such as the Vaca Muerta rate, which is named after where it was announced last month (not because it’s for buying or selling dead cows).That record of failure is written on the currency. Since 1970, Argentina has burned through several currencies: the peso ley, the peso argentino, the austral and now the peso convertible. Today there is no single exchange rate with the dollar that all residents can use. As colorfully explained recently in The Buenos Aires Herald, there is the official, or “wholesale,” exchange rate, for international trade; the savers’ exchange rate, which is supposedly for savers but is not widely accessible; and the “blue” dollar, which is essentially the black-market rate. Foreign tourists can buy pesos at yet another rate, the M.E.P., short for Mercado Electrónico de Pagos. There are even temporary exchange rates, such as the Vaca Muerta rate, which is named after where it was announced last month (not because it’s for buying or selling dead cows).
Javier Milei, who leads the polls in the presidential race, wants to chuck the whole rickety system, abolish the central bank and adopt the U.S. dollar, as three smaller Latin American countries — Ecuador, El Salvador and Panama — have already done.
Milei, it’s important to say, has extreme and I would argue insupportable stands on a number of issues. He wants to drastically cut taxes and spending, as The Times wrote, “including by charging people to use the public health care system; closing or privatizing all state-owned enterprises; and eliminating the health, education and environment ministries.” He is an economist and a member of the legislature who has large dogs named Milton Friedman, Robert Lucas and Murray Rothbard.