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Argentina’s Milei and the Dollar – Mary Anastasia O’Grady/WSJ

avier Milei, presidential candidate for the Liberty Advances party, at a press conference in Buenos Aires, Oct. 11. Photo: juan mabromata/Agence France-Presse/Getty Images
The outsider doesn’t work well with others, but he says he’ll bury the inflated peso. Javier Milei, presidential candidate for the Liberty Advances party, at a press conference in Buenos Aires, Oct. 11. (Photo: Juan Mabromata/Agence France-Presse)

By Mary Anastasia O’Grady

Buenos Aires – The emergence of Congressman Javier Milei as the front runner in the Oct. 22 presidential election has raised hopes for Argentina, here and abroad. The 52-year-old economist-turned-politician is viewed by many as the leader Argentina needs to get back to the economic liberalism that made it a superstar in the early 20th century.

But not all Argentine advocates of free markets are so optimistic about a Milei presidency, and it’s worth explaining the reasons.

Voters next week will choose among Mr. Milei and two major opponents: moderate center-right career politician Patricia Bullrich and the Peronist government’s current minister of the economy, Sergio Massa. Unless one of the three wins 45% of votes cast, or 40% with a 10-point margin above the next-closest competitor, there will be a runoff on Nov. 19.

Polls suggest that the outsider Mr. Milei is highly likely to qualify for the runoff and ultimately become president. Whether he is a great liberator or another populist caudillo is a matter of debate among Argentines.

Mr. Milei is a high-energy orator with a small party called Liberty Advances. He’s known for his passionate tirades against the establishment—what he calls the “caste”—on the campaign trail. Waving his trademark chain saw, railing against “woke” ideology, and promising to dynamite the central bank, he attracts huge crowds. His irreverence toward the status quo especially excites teens and 20-somethings, who want someone in the presidential palace who hears their grievances and will deliver revenge. Mr. Milei is their guy.

But rage isn’t a governing strategy. A President Milei would inherit a time bomb of debt, an inflation spiral and an economy in shambles. He would need a workable plan to navigate this looming crisis and allies in Congress to execute it. So far he has demonstrated neither the temperament nor the political skills to build the coalitions he will need to reform the dollarized economy he wants to create. That’s a problem.

Some of what appears to be ugly extremism is no doubt a campaign tactic. Mr. Massa, at the helm of the disastrous economy right now, is the easier one for Mr. Milei to beat in a runoff. The more challenging runoff rival is on the right side of the aisle: Ms. Bullrich, whose Together for Change coalition has an important presence in Congress. This is why Mr. Milei’s speech, oozing with insults against the establishment, is more often aimed at the Bullrich team than the corrupt Peronists.

Opponents on the right dislike more than Mr. Milei’s rude antics and intolerance. They doubt his competence and worry that after taking office under the banner of economic liberalism, he will fumble the ball. If the country blows up on his watch, the market economy will get the blame and another generation will be lost.

To be sure, the next president inherits a mess. The central bank, which has been printing pesos so the bankrupt government can pay its bills, has negative net reserves. Inflation is on track to end the year at 190%.

Both Ms. Bullrich and Mr. Milei are expected to liberate the exchange rate and lift capital controls. With suppressed inflation estimated in the triple digits because of the overvalued official exchange rate, prices will soar.

Mr. Milei wants to make the dollar Argentina’s currency. It’s a strategy that has worked well in El Salvador and Ecuador, ending repeated bouts of inflation and protecting the public from the ravages of reckless money printing by government.

The first step in dollarization is to freeze the amount of pesos and commit to printing no more. Next the government fixes the exchange rate at the market rate, exchanges the pesos in the banking system for dollars, and translates all contracts into greenbacks.

Critics worry that banks won’t have sufficient dollars on hand to satisfy depositors who try to withdraw cash in large amounts. But Argentine banks are largely used for transactional purposes, and the likelihood of a run will be low. At the end of 2022, Argentines held some $248 billion in foreign banks and cash—more than 50% of gross domestic product. “Dollar scarcity pertains only to the Argentine state,” as Cato Institute scholars Daniel Raisbeck and Gabriela Calderon explained in September.

The crucial condition is the government’s credible commitment to dollarization. Countries that successfully dollarize experience a confidence shock while the use of the local currency diminishes over time. This happened in 2000 in Ecuador, where the exchange rate was spiraling out of control and had provoked a banking crisis. Dollarization immediately restored confidence in the financial system.

Dollarizing the economy wouldn’t end protectionism, rigid labor law, Peronist cronyism or fiscal profligacy. Given his political style, Mr. Milei might not either. But if the next president finds a way out of the Argentine monetary trap, the nation will be infinitely better off.

Write to O’Grady@wsj.com.
__________________________________________________________

Mary Anastasia O’Grady is an Opinion Columnist, writes “The Americas,” a weekly column on politics, economics and business in Latin America and Canada that appears every Monday in the Journal. Ms. O’Grady joined the paper in August 1995 and became a senior editorial page writer in December 1999. She was appointed an editorial board member in November 2005. She is also a member of the board of directors of the Indianapolis­-based Liberty Fund. Energiesnet.com does not necessarily share these views.

Editor’s Note: This article was originally on the WSJ, October 16, 2023, print edition. All comments posted and published on EnergiesNet or Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet or Petroleumworld.

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EnergiesNet.com 10 17 2023

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