The South American nation sometimes suffers from a current account deficit, and relies heavily on imports of oil, technology, and medical equipment. Low revenue from its mostly agricultural exports means that Argentina faces a chronic shortage of foreign currency – and most of the dollars it gets end up flowing out of the country to paying interest on the unsustainable external debt, draining the country’s foreign-exchange reserves and making it difficult to stabilize the national currency, the peso.
National elections are approaching in October, and among the presidential hopefuls is far-right politician Javier Milei.
Milei describes himself as a “libertarian” and is running on an extreme neoliberal platform, pledging to slash all social spending, privatize the health system, sell off state companies, remove all currency controls, and abolish the central bank – while simultaneously militarizing the country, giving police more authority to arrest “criminals”, and building private prisons.
Despite his “libertarian” pretenses, Milei vowed to make abortion illegal as well, promising to take Argentina “back to being the thriving country that we were at the start of year 1900”.
Milei’s proposed solution to end inflation is for Argentina to abandon its monetary sovereignty, drop the peso, and adopt the US dollar as the country’s official currency.
His call for dollarization has been echoed by fanatical Austrian School economists like former Ronald Reagan advisor Steve Hanke, who is publicly supporting Mileiand tweeted, “It’s time to dump the pathetic PESO and DOLLARIZE NOW“.
Prominent South Korean development economist Ha-Joon Chang has shot back, denouncing this as “the worst idea” and “insane”.
Chang warned that dollarization would turn Argentina into a US “colony”.
In an interview during a visit to Argentina this May, first reported on by Nick Corbishley at Naked Capitalism, Chang explained:
If you want to adopt the dollar as your official currency, you should apply to become a colony of the United States of America, because that’s what it makes you. Because this means that your macroeconomic policies will be written in Washington, DC.
Now, in a big country like the United States, actually, when the macroeconomic policies are made in Washington DC, there will be states elsewhere in the US that suffer, because the federal government might be tightening the economy, because in general there is inflation, but then in some regions there might already be recession, and then they’ll be in big trouble.
So the fact [that it is] a single country, what you do is you make transfers to these regions suffering from recession. And, most importantly, people in those regions in economic recession can move elsewhere, to take up jobs in the areas that are doing well.
A fiscal union and labor market integration are the necessary conditions for this to make the currency union viable.
And the reason why the Eurozone had such crisis was because they didn’t do this enough. The labor market is integrated, but there’s a language barrier; so it’s not perfect. There is no fiscal union, so they cannot make a transfer to the poor regions. So this is why they had such trouble.
Now, Argentina unilaterally accepting the US dollar as a currency is insane, because you don’t have labor market integration; you don’t have fiscal transfers.
It’s not as if the [North] Americans are going to say, ‘Oh you cute guys in Argentina, now that you want to use the dollar as your currency, we will accept more immigrants from you; we’ll give you some money’. No.
This is the worst idea.
Argentina is suffering from high inflation due to odious debt owed in US dollars to the IMF and Western vulture funds.
Argentine right-wingers insist the "solution" is to abandon monetary sovereignty, adopting the US dollar.
Economist Ha-Joon Chang said "this is the worst idea"… pic.twitter.com/MAvHN2RCwb
— Ben Norton (@BenjaminNorton) May 24, 2023
While Latin America’s left wants to de-dollarize, the region’s right dollarizes
The government of Brazil’s President Lula da Silva has initiated research to develop a currency for trade within the region, which will tentatively be called the Sur.
This issue is clearly important for Lula, because he used his first foreign trip after returning to the presidency in January, a visit to Argentina for the summit of the Community of Latin American and Caribbean States (CELAC), to publicly announce the plans to develop the pan-Latin American currency.
Argentine’s current, center-left government has joined China’s Belt and Road Initiative and signed several economic agreements with Beijing, including currency swap lines between the countries’ central banks, seeking to replace the dollar with the renminbi in their bilateral trade.
Argentina, which has the third-largest economy in Latin America, has also formally applied to join the BRICS bloc, joining its neighbor Brazil, which has the biggest economy in the region.
There are two countries in Latin America that already use the dollar as their national currency: El Salvador and Ecuador.
El Salvador dollarized starting at the end of 2000, under the conservative government of President Francisco Flores, from the far-right, staunchly pro-US ARENA party.
Flores was notorious for his extreme corruption, and when he died in 2016, he was under house arrest for stealing millions of dollars that were donated by Taiwan, in what was effectively a bribe to maintain diplomatic recognition. (El Salvador formally recognized the People’s Republic of China in 2018, under leftist President Salvador Sánchez Cerén of the socialist FMLN party.)
Ecuador’s right-wing government surrendered its monetary sovereignty and adopted the dollar in 1999, in response to a banking crisis that devalued the national currency.
The economic minister who oversaw that dollarization was Ecuador’s current right-wing president, Guillermo Lasso.
Steve Hanke, the ultra-neoliberal Austrian School economist who is calling for Argentina to dollarize and publicly supporting far-right politician Javier Milei, took credit for Ecuador’s lack of monetary sovereignty, boasting on Twitter: “The only thing stable & reliable in Ecuador is its money: the USD. With an assist from yours truly, Ecuador dollarized in 2000”.
In May 2023, Lasso dissolved Ecuador’s unicameral parliament – the National Assembly, in which the opposition had a majority – and essentially declared himself a dictator.
He is now ruling by decree, and ramming through extreme neoliberal policies.
Lasso plans to impose laws that will cut wages, make new employees work for five months without benefits, and even force workers to pay back their employers a month of their salary if they are unilaterally fired (while making it significantly easier for companies to fire their employees).
The US government has strongly supported Lasso as he has dissolved parliamentand declared a de facto dictatorship.
Ecuador's right-wing President Guillermo Lasso, a multimillionaire banker notorious for blatant corruption, dissolved the National Assembly to stop it from impeaching him for embezzlement.
The U.S. is strongly supporting this dictator as he rams through extreme anti-worker laws. pic.twitter.com/oKmzitdPZ1
— Ben Norton (@BenjaminNorton) May 20, 2023