Argentina Dollarization Slammed as a ‘Mirage’ in Letter from Economists

Bloomberg — Argentina economists lambasted a proposal to dollarize the nation that’s backed by presidential candidate Javier Milei, calling the idea a mirage and warning it would spawn a new set of challenges.

The country lacks the needed amount of dollars, and efforts to build up supply would entail “absurd” increases in debt, further compromising public finances, dozens of prominent economists wrote in a letter released on Sunday. Adopting the dollar doesn’t make sense given the complexities of Argentina’s economy and the fact that it’s little correlated with the US, they wrote.

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This Is How Argentina’s Javier Milei Plans to Dollarize

The libertarian candidate, who came out on top in the primaries, wants to turn the country into the world’s biggest dollarization experiment

While the pledge of a stable currency generates hope, “international experience and the situation of our own economy indicate the proposal in question is far from being a panacea and that, on the contrary, it could generate multiple difficulties for our immediate and future performance,” they wrote.

The letter’s signers are condemning “a solution to a monetary scam,” Milei wrote in response on X, the social media platform formerly known as Twitter. He added that those economists “have been defeated in the classrooms and also in the facts related to the fight against inflation.”

Milei, a radical libertarian who shot to the forefront of Argentina’s presidential race 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. That proposal and others — including a plan to shutter the central bank— are now sparking significant push-back.

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Dollarization ‘Not the Answer’ for Argentina, Former IMF Board Member Says

In a warning to presidential candidate Javier Milei, Mark Sobel says dollarization would be “too risky” and that resolving the country’s economic woes would require a lot of work

Former Mexican central bank Governor Guillermo Ortiz, onetime Chilean Finance Minister Andres Velasco and Arminio Fraga, who led Brazil’s monetary authority between 1999 and 2003, all criticized the dollarization proposal in a press call last week. Ortiz said it would fail to solve “structural problems” while Fraga said it “sounds like a magic solution.”

In the letter, the Argentine economists wrote the nation is facing challenges including galloping inflation, instability and surging poverty.

“Let us not allow — out of nearsightedness and desperation — that the difficult situation in which we find ourselves encourages us to taking a false shortcut that only leads to new and more dramatic frustration,” they wrote.

Read more at Bloomberg.com