A member of the IMF’s executive board has called on Argentina, the fund’s largest borrower, to abandon the peso in favor of the dollar to help curb one of the fastest inflation rates in the world.
At the same time, the Central Bank of Argentina floated leliq peso-denominated bonds of about 2.2 trillion pesos, with an unprecedented yield of 118%.
“Dollarization will be very positive for Argentina,”Mark Rosen, the US official on the IMF board from 2019 to 2021, said in an interview. “This would essentially eliminate most of the inflation risks in the future,”he said.
The frontrunner Javier Mele promised to improve the Argentine economy – the second largest in South America – if he wins the presidential elections in the country later this year, the candidate who put forward the idea of a trend for the dollar and the abandonment of the local currency. The proposal, which lacks key details such as the source of the dollars needed to do it, the exchange rate for the Switch or the transitional timetable, has been criticized by economists at home and abroad.
Argentina’s 44 billion dollar IMF deal, the largest for the Washington-based lender, hinges on the economic policy of the next government. The administration of the current president, Alberto Fernandez, has repeatedly missed targets after increasing budget spending and asked to reformulate the program. This puts pressure on the next government to come up with a credible plan that wins the support of the IMF.
The IMF has not officially expressed a point of view on Milli’s proposal for dollarization. Alejandro Werner, a former IMF official who worked on the country’s program, criticized Milli’s proposal for dollarization, calling it “impossible”.
