ISSN 2330-717X

Argentina On The Spotlight Of Professor Steve Hanke – OpEd

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On September 5th, 2019, the editorial board of the Wall Street Journal (WSJ) published an article on the ongoing economic crisis of Argentina. At its outset, the Wall Street Journal provided an overview of the political developments – including last August primary victory of left wing presidential candidate – in the South American nation, stating that: “Argentina is back in the soup, as it so often is. The prospect that Peronists might retake power has Argentines fleeing the peso for dollars, and on Monday the center-right government of President Mauricio Macri imposed capital controls. Here’s a better idea: Replace the peso with the U.S. dollar as Argentina’s legal tender. The actual election is in October but the August primary victory of left-wing populists— presidential candidate Alberto Fernández and his running mate, former president Cristina Kirchner — has triggered a monetary panic. The demand for dollars has soared, the peso has fallen some 20% against the dollar, and central bank reserves are declining. President Macri has done nothing to shore up confidence. After the primary vote foreshadowed a likely defeat in his bid for a second term, he announced a gasoline price freeze, a minimum-wage hike and new subsidies for special interests.”

The WSJ candid analysis continues: “This Peronism-lite did nothing to restore government credibility. Last week Argentina failed to roll over its maturing dollar-denominated debt, and candidate Fernández, who is promoting the impression of chaos, said the country is in “virtual default.” The capital controls will limit access to dollars for businesses and individuals. Exporters will be required to bring their hard-currency earnings back to Argentina.”

In WSJ’s important analysis Prof. Steve Hanke, Johns Hopkins University Professor of Economics, was quoted: “Economist Steve Hanke recently wrote in Forbes that Argentina had “major peso collapses” in 1876, 1890, 1914, 1930, 1952, 1958, 1967, 1975, 1985, 1989, 2001 and 2018. Each time Argentines have had their savings, earnings and purchasing power diminished. Now the government is telling investors that if they put their money in Argentina, they can’t be certain they can take it out. This is sure to be a drag on growth. The economy is expected to contract this year and next.”

And the WSJ analysis continues: “Dollarizers face resistance from the Peronist party, which relies on the inflation tax to fund its populism when revenues run low. Yet demand for dollars suggests that Mr. Macri would have popular backing for adopting the greenback as the national currency. Lawyers in Argentina differ about the legality of dollarization under the Argentine constitution, but our sources believe Mr. Macri could dollarize with the backing of a majority in Congress. Panama has used the dollar as legal tender since 1904, and El Salvador and Ecuador dollarized in 2000. Ecuador did it to resolve a banking crisis and El Salvador did it to bring down interest rates. El Salvador and Panama now have the lowest domestic borrowing rates in Latin America and the longest maturities. Ecuador has price stability not seen in at least a half century.”

The op-ed continues by further exploring the intricate complexities within the Argentinean currency and economic policies: “One objection to dollarization is that Argentina would lose the profits a central bank earns by printing its own currency, known as seigniorage. But this is a political excuse disguised as economics. What is lost in seigniorage will be more than offset by ending peso crises. Setting the right exchange rate also matters. Several Argentine economists propose converting short-term government paper to longer-term bonds to reduce the number of pesos that need to be exchanged for dollars in the short run. But the best rate is probably the black-market rate where the peso now trades. Dollarization eliminates the moral hazard that central-bank rescues encourage in the banking system; international capital markets become the lender of last resort. Another benefit is that it would be nearly impossible to reverse, unlike Argentina’s one-to-one convertibility law with the dollar of the 1990s, which politicians violated when they were back in hock in the early 2000s. Argentines also ought to have the right to keep their dollars abroad if they choose. This would alleviate the worry that the government might “corral” bank accounts as it did in 2001. A Macri decision to dollarize would break this ugly cycle by giving Argentines a store of value and a medium of exchange they can rely on. It might not save his Presidency, but it would ensure a legacy for Mr. Macri as the leader who dared to defend Argentine savings from a marauding future government.”

Source:https://www.wsj.com/articles/a-dollar-for-argentina-11567724262

Peter Tase

Peter Tase

Peter Tase is a contributor, freelance journalist and a research scholar of Paraguayan Studies and Latin American Affairs in the United States; he is the founder of Paraguay Economic Forum in Milwaukee, United States. Educated at the University of Wisconsin - Milwaukee and Marquette University, Tase is the author of "Simultaneous Dictionary in Five Languages: Guarani, English, Italian, Albanian and Spanish" and "El Dr. FEDERICO FRANCO y Su Mandato Presidencial en la Historia del Paraguay." Tase has written many articles on Paraguay's current Foreign Policy, Latin American Affairs and MERCOSUR regional trade issues for Eurasia Review and the Council on Hemispheric Affairs in Washington, D.C.. Peter has appeared on SNT Cerro Cora, Asuncion and appeared in “Tribuna Pública” in TV Publica Paraguay, as well as given interviews for Diario 5 Dias in Paraguay, ABC Color, Ultima Hora, IP Paraguay, Revista PLUS+, Radio Ñandutí, Radio Nacional del Paraguay, www.datamyne.com and Spero News. Tase completed a Congressional Internship in the Office of Congressman Richard Pombo (CA-11), U.S. House of Representatives, and studied U.S. Government and International Affairs at the Les Aspin Center for Government in Washington, D.C.. In 2012 he was an adviser of Foreign Affairs and International trade Issues to the Chairman of the Committee on Trade, Tourism and Industry in the National Congress of Paraguay. Peter Tase is fluent in Guarani, Italian, Spanish, Albanian and mainly writes in English and Spanish.

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