An article in the prestigious economic media evaluated the Potential currency conversion in Argentinaby the hand of Milei through dollarization, his “workhorse” during the election campaign which took him to the Casa Rosada, and gave as an example the difficulties that Latin American countries are going through.
The publication resumes the discussion regarding dollarization and states that The complex reality in which Ecuador, Panama and El Salvador find themselves “should make Javier Milei reflect”the president of Argentina, who campaigned for adopt the dollar and close the Central Bank.”
The Economist warned Javier Milei: “Dollarizing can create a punishment for oneself”“
According The Economist, The Argentine President “could argue that eliminate the fiscal deficit and eliminating controls, is making the Argentine economy what flexible enough to benefit from dollarization. And it is true that Latin America has abused the depreciation of its currencies to cover up failures in its policies. But experience shows that, far from being a panacea, Dollarizing can create a punishment for oneself“.
The article notes that the trio of countries referred to adopted the dollar as official coin and currently face significant challenges due to the strength of the US dollar. Ecuador, for example, one of the main ones rose exporterssaw reduce their competitiveness in the global market against countries such as Colombia, Ethiopia and Kenya.
“After its monetary collapse in 2000, Ecuador adopted the US dollarWith the dollar now strong, Ecuador’s roses are losing ground in world markets,” explains the British weekly’s report.
In addition to the difficulties in combating internal problems such as violence of drug trafficking in the case of Ecuador, The newspaper gives the example of the closure in Panama the closure of a large copper mine significantly reduced its GDP. As for The Savior, the policy of Nayib Bukele scared away investors, he says. As a result, “the projected economic growth for these countries is below the average for Latin America”.
The Economist analyzed the consequences of abandoning the currency
The article warns about the implications of giving up one’s own currency, such as, for example,protect against external economic situations and conduct its own monetary policy.”Adopting the dollar means giving up an independent monetary policy and the option of respond to external shocks by means of the devaluation of the currency,” he notes.
The ability to maneuver in the face of an internal crisis is limited. In addition, dollarized countries must maintain a aggressive fiscal policy since they cannot solve social assistance or internal credit by printing their own currency.
The British weekly indicates that the deficits of the three countries were considerable last year and the public debt continues to increase. In this regard, it points out that “Tight fiscal policy becomes especially important, because countries cannot print money to cover their budget deficits.”
However, they clarify that one dollarization “fosters greater economic integration with the rest of the world because it reduces the transaction costs involved in trade.” However, they explain that ““If goods and services are not competitive, it will be more difficult to take full advantage of potential opportunities.”
Javier Milei on dollarization: “I don’t think we’ll make it to next year’s elections”
President Javier Milei He highlighted the economic management carried out by his government and stressed that the greatest achievement was “having avoided hyperinflation.” On the other hand, he assured that he will carry out his “currency competition” plan, which he differentiated from dollarization, and considered that He does not believe he will be able to implement it for “next year’s elections” although “the goal as such exists.”
Although dollarization was one of the emblems of the campaign of Milei, In an interview with CNN, The president assured that “dollarization was never discussed” but rather that they proposed a “currency competition.”In this competition, it is very likely that, if a currency is imposed, the currency that will be imposed by the preferences of the Argentines will most likely be the dollar.. That is why we talked about dollarization,” he explained.
Although he defended the project again, he acknowledged: “I don’t think we’ll make it to next year’s elections, but the goal exists.” However, he stressed that the closure of the central bankanother of his great campaign promises, remains in place.
Source: Ambito
