Will Javier Milei dare dollarize Argentina?
An economic disruptor has won Argentina’s presidency. Javier Milei, who describes himself as an “anarcho-capitalist", intends to impose a radical agenda. He wants to reduce ministries from 18 to eight, crunch public spending from about 38% to 23% of GDP, privatize state enterprises, and get rid of many levies and regulatory controls.
His most daring proposals, however, are to abolish Argentina’s central bank, villainized for printing pesos at the behest of politicians, and dollarize its economy to combat triple-digit inflation. As Milei lacks legislative support, it’s unclear how far his “chainsaw" approach can go. The country owes over $40 billion to the International Monetary Fund and has negative net foreign exchange reserves.
With a credit rating that turns lenders away, Argentina lacks dollars to convert all pesos into. So how exactly it expects to adopt the US greenback as its currency is a mystery. Pesos dumped in panic could create chaos.
After all, even a peso pegged to the dollar would take robust forex reserves to defend. For all his grand ideas, Milei may find conventional wisdom worthier at the end. The worry is the cost Argentinians may have to bear for that discovery.
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