Milei Wants Argentines to Dollarize the Economy for Him

[A Antares]

The power of positive thinking I guess?

I know I've debated this with other forum members previously, but endogenous dollarization assumes that the overwhelming majority of Argentines have dollars freely available to be liquidated that will enter in to the macroeconomy of which all Argentines are part of, something I seriously doubt as 53% of people live in poverty here. For example, INDEC said in Q1 2024 that Argentine residents had 257 Billion dollars outside the financial system, which would mean every man, woman, and child has about $5,500 in cash.

Now, I know I frequently suggest some folks on here are... disconnected from the the reality of the average Argentine economically compared to their social circles/personal wealth, but let's assume that we all more or less agree that $5,500 is an unrealistic number for several reasons. What does the reality look like in this case then with 53% poverty? I'd argue millions of people with nothing, and several hundred thousand families sitting on a basically a Scrooge McDuck vault of hundred dollar bills.

The issue with endogenous dollarization in this circumstance is that both poor and middle class people (generally) have the same caloric, basic consumption, health, etc. needs that wealthy people do. i.e. a single professional living in Cordoba has $5,000 in cash, and a family of 4 in Palermo has $100,000; the family of four isn't consuming 20x the Yerba Mate, 20x the electricity, 20x the YPF super, paying 20x the prepaga cutoa, etc. They're buying a new Hilux, they're renovating their quinta, they're buying business class tickets to Miami, things that have already been dollarized, and exist more or less outside of the current financial system as is. It reminds me a lot of the "flat tax" proponents, sounds great in theory, but it's the most regressive tax, and we have it here via 21% IVA.

In my humble opinion, the only way dollarization works is when the government sets the rules of the road, much in the way the European Union has done Eurozone expansion. Argentina gets inflation under control, it establishes a floating currency or crawling peg with the dollar, it enters the ERM II style peg to the dollar (without a cepo), and then a fixed date is established at which point pesos can be exchanged for dollars at the BCRA and commercial banks. And I'm saying this as someone who doesn't think dollarization is the right approach, but if you're going to do something, do it right, don't half ass it like Caputo and Milei are doing everything, changing the rules in the middle of the game and getting mad when the market and people don't trust them.

Interesting hypothesis, but where would Argentina get the money to obtain dollars which eventually must be paid for one way or another? I presume that you are aware that Argentina cannot print dollars.

 

[Ries]

the imaginary Milei way to get dollars is to mutter the right libertarian slogans, and "investors" like Musk will just give him the dollars.
en realidad, we need to export products and sell them on the world market for dollars.
but the Milei scattershot approach is not helping any businesses export, and still relies on the extremely regressive taxation system, including insider negotiated export taxes on 4 or 5 very low value added raw material and agricultural exports.
Argentina can EARN dollars, but only if the government supports and helps the manufacturers and growers that make exportable goods. Also, cultural exports can be big earners, and he has cut support systems for cinema, dance, literature, music, and art, all of which are exports wtih very minimal overhead costs.

 

[A Antares]

"en realidad, we need to export products and sell them on the world market for dollars."

That is one solution and has been in practice since Argentina attained independence in July 1816 and began trading with the United States. And also if Argentina has the time and patience to replace their entire M3 [88,889,339,900,000 ARS as of June 2024] with foreign reserve U.S. dollars.

Argentina Money Supply M3

Money Supply M3 in Argentina increased to 98398005.50 ARS Million in September from 92840778 ARS Million in August of 2024. This page provides - Argentina Money Supply M3 - actual values, historical data, forecast, chart, statistics, economic calendar and news.

tradingeconomics.com

 

[FrankPintor]

Interesting hypothesis, but where would Argentina get the money to obtain dollars which eventually must be paid for one way or another? I presume that you are aware that Argentina cannot print dollars.

It seem that the plan is to squeeze middle class Argentinians enough so they have to liquidate the USD 250 Billion they have stuffed under the mattress to pay their day to day expenses. I wonder, would it count as the largest destruction of private savings? 10 times bigger than Gaza... that would be a fitting epitaph for this government and its cosplaying president.

 

[A Antares]

It seem that the plan is to squeeze middle class Argentinians enough so they have to liquidate the USD 250 Billion they have stuffed under the mattress to pay their day to day expenses. I wonder, would it count as the largest destruction of private savings? 10 times bigger than Gaza... that would be a fitting epitaph for this government and its cosplaying president.

Precisely Sir.

 

[Ries]

The middle class dont have the billions. The rich do. And the rich dont need to liquidate it. They are rich.
Economic history tends to show that savings INCREASE during a recession, not get destroyed.
The majority of people, in pretty much every country, live paycheck to paycheck. Only the affluent save.
For instance, during the great recession of 2007-2009, savings rates went UP in pretty much every country around the world.

I still dont understand the magical thinking that some angel-like "investors" will bring in dollars and save everything.
Milei's policies only allow for raw material exports.
In the last 500 years or so, starting with the Dutch and British East India Companies, thru the golden era of the oil companies, to Blackrock and the Saudi national funds today, we see, again and again, that foreign investors seek a profit and repatriate it, not invest it.

The "third world" countries that have become first world have all done it thru industrial policy at a national level, and Value Added Exports- Japan, Korea, Taiwan, Singapore, China, and lately, Vietnam, have all done this. None have increased GDP thru raw material or ag exports.

 

[Quilombo]

Interesting hypothesis, but where would Argentina get the money to obtain dollars which eventually must be paid for one way or another? I presume that you are aware that Argentina cannot print dollars.

I'm very aware of this, it's Milei and his fans that appear to be struggling with the mathematics of getting blood from a stone. Check my post history, I've been saying since he announced his candidacy that he's a bullshitting liar because not only was dollarization a bad idea, it wasn't happening because nobody was going to lend us 35 billion to dollarize, and it's only gotten more expensive to do since as he's overvalued the peso.

If the M3 of Argentina is 74 Billion dollars at a 1,200 pesos per dollar exchange rate, and 70% of Argentines earn less than $500/month it doesn't matter how much he wishes for dollarization to occur because it's not going to happen, endogenous, BCRA driven, or otherwise.

So, add this to the list of Milei's lies. I wonder what he'll campaign on next year for the midterms when the economy is still in the shitter.

 

[A Antares]

I'm very aware of this, it's Milei and his fans that appear to be struggling with the mathematics of getting blood from a stone. Check my post history, I've been saying since he announced his candidacy that he's a bullshitting liar because not only was dollarization a bad idea, it wasn't happening because nobody was going to lend us 35 billion to dollarize, and it's only gotten more expensive to do since as he's overvalued the peso.

If the M3 of Argentina is 74 Billion dollars at a 1,200 pesos per dollar exchange rate, and 70% of Argentines earn less than $500/month it doesn't matter how much he wishes for dollarization to occur because it's not going to happen, endogenous, BCRA driven, or otherwise.

So, add this to the list of Milei's lies. I wonder what he'll campaign on next year for the midterms when the economy is still in the shitter.

Yes, dollarization of an economy the size of Argentina's is impractical, if not outright delusional.

In contrast to Milei, whom you abhor, what then is your alternative solution to resuscitating Argentina's economy? What specific steps would you take to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP; all the while remaining solvent by servicing the debt burden?

 

[FrankPintor]

Yes, dollarization of an economy the size of Argentina's is impractical, if not outright delusional.

In contrast to Milei, whom you abhor, what then is your alternative solution to resuscitating Argentina's economy? What specific steps would you take to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP; all the while remaining solvent by servicing the debt burden?

Does anyone in the forum need to come up with these ideas? Wouldn’t that be the task of the government?

What are the steps being taken by the government?

“to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP”

Do please tell us. So far it’s maybe 1 out of 4.

 

[Jimbob]

Does anyone in the forum need to come up with these ideas? Wouldn’t that be the task of the government?

What are the steps being taken by the government?

“to reduce inflation, replenish foreign reserves, lower unemployment and increase GDP”

Do please tell us. So far it’s maybe 1 out of 4.

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