The Argentine constantly suffers from a wear and tear of its purchasing power from being the most inflationary economy in the world in the last 40 years. As long as this dynamic continues, I think dollarization will continue to affect many compatriots. On the other hand, it is striking how in our under-40 generation the conviction of losing our currency in order to limit the economic actions of the governments in power has flourished.
Critics of dollarization say that to be effective, the exchange rate would have to stabilize at too high a level. But it’s not like that. Argentina is a machine for producing dollars. We have seen it in these last three months where a compensation in the settlement price has managed to liquidate currencies for more than US $ 9 billion. Faced with a change of government, with a robust economic proposal, it will be possible to dollarize taking as reference the equilibrium exchange rate of our economy, which turns out to be financial dollars. To think that the equilibrium exchange rate of $170 is a delusion that will remain for a few who can access a dollar financed by the national state.
The permanent fiscal deficit generates monetary expansion. So, the doubt points to the fact that, without cleaning up the fiscal accounts, how could you implement dollarization? That is so and, in addition, other imbalances are generated in the macroeconomy. The invention of interest-bearing liabilities, today called Leliqs and formerly Lebacs, have been the worst monetary policy creation of the last 50 years. Faced with absolutely undisciplined governments in fiscal and monetary matters, using the BCRA mechanism to finance “quasi-fiscal” deficits has only deteriorated the financial credit system in our country, in addition to destroying our currency. No serious and consistent economic program can be implemented with a primary fiscal deficit.
Finally, there are different ways to achieve the blessed macro stability that we need to grow continuously. I respect the opinion of different economists who trust that these currency board mechanisms can eradicate inflation and generate stability. However, I believe that, in the face of our institutional anomie, the only way to generate a state policy in economic matters is to go towards a dollarization process. We have seen how populist governments like Correa’s in Ecuador have not been able to reverse dollarization, because it has turned out to be more “popular” than any government in power. On the other hand, the memory of the currency board of the 90’s, misnamed convertibility, may be a bad omen for many Argentines who suffered a destructive devaluation of their assets in order to transfer wealth to some specific sectors of the economy. This absolutely irresponsible decision to devalue 4 to 1 in 2001/2 is a clear example of how politics makes decisions for its own benefit instead of thinking about the interests of Argentine society as a whole. Dollarization will definitely be that handbrake and we will be able to corset and strongly limit their undisciplined and irresponsible decisions that have been repeated since 2003 onwards.
Alfredo Romano is director of the business economics program at the Universidad Austral and author of the book Dollarize, a path to economic stability.
by Alfredo Romano
