Argentina may need to default, not dollarize, says the British media’s “The Economist” in an article where it takes stock of one of the central ideas of the libertarian candidate Javier Milei: dollarize the economy of the Latin American country.
“The Argentine economy is in tatters, in the midst of annual inflation above 100%, which has led to putting on the table even the most radical solutions, such as dollarization,” according to the magazine.
“Unfortunately, dollarization is more likely to be a curse than a solution to Argentina’s problems,” the article warns.
“The option proposed by the libertarian presidential candidate, who was crowned the winner of the primary elections, to the surprise of many, adopts an unrealistic and optimistic vision of governments,” The Economist explains.
“Milei’s idea assumes that politicians, aware that they can no longer turn to the central bank in a crisis, will automatically reduce their borrowing to a safe level. This would be true if the only reason governments borrowed too much was because they knew the central bank would bail them out. In reality, most governments go into debt because there is enormous pressure to do so,” according to The Economist.
The Economist also points out that the bureaucracy needs to be restructured, adding that there is no central bank that acts as a lender of last resort for either the government or the banking system. Therefore, defaults become much more likely.
“It is easier to foresee a future in which Argentina falls into disaster than one in which the authorities see the difficult decisions necessary to make dollarization a success. Excess taxation has been a problem for the better part of a century,” The Economist added.
“Economists believe that the Southern Cone country is insolvent again, which means that it will be almost impossible to pay its existing debts, the largest of which is with the International Monetary Fund (IMF), to which it owes 44,000 million dollars,” according to The Economist.
“The country’s bond prices reflect the fact that financial markets are pricing in another debt restructuring. In order to start over, Argentina may need to default, not dollarize,” The Economist added.
Milei, candidate of La Libertad Avanza and self-described “libertarian,” obtained 30% of the votes, while the opposition force Together for Change was in second place with 28.3%, in which former minister Patricia Bullrich was victorious with 17% of the votes.
