Argentine presidential candidate Javier Milei wouldn’t implement his dollarisation plan overnight but in stages along with a series of other policy steps, his economic adviser Diana Mondino said in an interview with Bloomberg News on Tuesday.
Mondino said Milei would start unwinding Argentina’s currency controls by allowing private sector businesses to carry out transactions in foreign currencies. Milei calls this the “free competition of currencies,” a prerequisite to his chief campaign proposal of fully dollarising the financial system. The rest of the measures would be implemented over the following months.
Mondino wouldn’t provide specific timing on currency policies due to Argentina’s highly volatile economic backdrop, ruling out that Milei would launch full dollarisation measures immediately upon arrival if he were to win the presidential election.
Instead, the peso would be replaced with US dollars in parallel with a series of other policy steps. The four-point plan includes significantly reducing public spending, cutting the Central Bank’s debt and, finally, lifting the framework of foreign exchange restrictions until dollarisation is complete.
“We have a monumental monetary problem, the only way you solve that problem is with dollarisation,” says Mondino, a finance professor who is running for Congress on Milei’s ticket. The Argentine economy “is the Titanic that already crashed into the iceberg. We have to make sure it gets to shore.”
Milei stunned Argentina by winning a primary election Sunday, defeating the country’s two established coalitions to become the frontrunner in the Ocober 22 general election. Markets crashed Monday on election uncertainty, with the government forced to devalue the peso 18 percent, easily the largest one-day move in several years.
If elected, Milei would inherit enormous challenges. He’ll be tasked with taming 113 percent inflation as the economy dives deeper into recession this year with a US$44-billion programme from the International Monetary Fund on the line. Argentina must start repaying capital to private creditors next year, too, after the current administration restructured US$65 billion of bonds in 2020.
A Milei government would cut public spending by four percent of gross domestic product to reach a primary fiscal surplus of one percent of GDP by the end of 2024, Mondino said. Milei would also eye tax cuts, though they would not be implemented at the same pace as spending cuts. The surplus target would imply one of Argentina’s toughest austerity campaigns in its history.
After the spending cuts, Mondino says Milei would focus on resolving the Central Bank’s short-term peso debt, currently worth US$26.1 billion at commonly used exchange rates. One idea on the table is to cancel the peso debt by selling or swapping Treasury bonds to banks.
After spending cuts and beginning to unwind the Central Bank’s balance sheet, Milei plans to finish lifting Argentina’s cobweb of complex currency controls to fully dollarise the banking system. Only after the spending cuts, debt payments and lifting of controls can Milei focus on completing dollarisation, Mondino explained.
“At minimum, it has to be done a minute before dollarisation,” she said.
Mondino notes that undoing foreign exchange controls is a tricky undertaking full of pitfalls. Since 2019 Argentines have only been able to legally exchange US$200 worth of pesos a month and must pay multiple taxes on top of that amount. Mondino says the potential Milei administration has not yet decided on amounts, frequency and the persons allowed to tap dollars.
Technical details aside, Mondino says one other ingredient is essential to resolving the country’s economic crisis.
“The only way Argentina gets out of this chaos is with credibility,” she emphasised.
by Manuela Tobias & Ignacio Olivera Doll, Bloomberg
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