Thinking about dollarization without considering these four points will not solve anything. There are no shortcuts or quick, low-cost solutions. In this way, before an eventual dollarization, the first decision must revolve around a fiscal restructuring, without it everything else will be irrelevant. What stabilizes is not dollarization per se, but the fiscal signal not to spend more than is reasonable. In view of the 2024 economic plan, it will be essential to restructure the current system. Nothing formulated without this central decision will work. If dollarization is intended to liquefy public spending, all exchange rate liquefaction entails a social cost as previous ones have been, and we have a lot of experience on this front. It is impossible for me to imagine dollarization without a painful exchange rate liquefaction as a side effect. Sooner or later, the debate will have to take place on two unavoidable fronts:
- Restructuring of the current system with a drop in public spending
- Deregulation of the economy so that the hope of growth can be recovered, returning to the bases of productivity, efficiency and the priority of the field as the main generator of resources
In itself, the confidence shock will not come only from an isolated dollarization, but from a fiscal signal indicating that we are going to spend much less than what is being done today. Bringing the debate to the sphere of dollarization without contemplating any of these points is a sterile discussion and also:
- What would be the cost of dollarizing an economy that today does not have dollars?
- At what implicit exchange rate would an economy that has a lot of pesos left over and is short of a lot of dollars dollarize?
- What liquefaction associated with dollarization would we be talking about in salaries, retirements, as in fixed terms of savers?
- What levels of poverty would we be talking about after the exchange rate liquefaction?
- If dollarization were to be reached, what would prevent our country from issuing quasi currencies like in 2001?
Converting pesos to dollars would potentially be a very strong adjustment (on the other hand, what would be the reason why we should expect dollars to appear). And one might wonder if they would be willing to support such a correction. With or without dollarization, in 2024 the adjustment will be inevitable and will probably be carried out by the market. Although convertibility was not a dollarization experiment in the strict sense, fiscal indiscipline was one of the main causes of its end. In those years, the sign of confidence was that the peso was anchored to a fixed price against the dollar, so we stopped issuing pesos, but we started with quasi currencies. Precisely, the quasi currencies supplanted the issuance of pesos and served to continue feeding the deficit and even more so when the market began to glimpse the default and the door of external financing was closed.
In short, the important thing is that instant solutions do not exist. If dollarization is a complement to an economic policy that recovers productive logic and fiscal discipline, then it would be an acceptable ally, but if that were the case, it would be useful to launder the costs of said conversion. Dollarizing as an isolated concept will be an absolutely harmless measure.
Professor at CEMA University.
Source: Ambito
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