Argentine President-elect Javier Milei’s plan to abolish the country’s central bank might not be a “slam dunk,” former U.S. congressman and three-time presidential candidate Ron Paul has cautioned.
The libertarian economist ran on a campaign of dismantling the central bank, dollarizing Argentina’s economy, and shrinking the size and scope of government. While some media reports suggest that Mr. Milei could be in the early stages of backtracking on some of his proposals, his team has insisted that this type of “shock therapy” is “non-negotiable.”
Some observers don’t believe it will be guaranteed that Mr. Milei can tear down the institution because of intense opposition from within the government.
“There'll be some hysterical reactions to that because that’s what they depend on. They depend on central economic planning, manipulating interest rates, yelling people out, and all these things are under these conditions,” Mr. Paul told The Epoch Times. “I don’t think it’s a slam dunk.”
Echoing the sentiments of other libertarian-leaning economic experts, the best-selling author of “End the Fed” and “The Revolution: A Manifesto” thinks that transitioning to the dollar from the peso won’t be as challenging because the South American nation no longer has a functioning currency.
The Argentine peso has lost much of its value against the U.S. dollar while the country has endured a 143 percent inflation rate. Additionally, Argentine investors are bracing for a 44 percent devaluation of the nation’s official exchange rate after Mr. Milei is inaugurated.
Experts have suggested that abandoning the peso for the dollar can stabilize a sinking ship. However, Mr. Paul warned that embracing the greenback also presents some future issues for Buenos Aires.
“It would make them somewhat vulnerable because of the attacks on the dollar,” Mr. Paul said. “If the dollar gets really banged around, that would hurt the Argentinians just as well. So, it would be a tricky operation.”
Over the past 18 months, the global de-dollarization campaign, a coordinated worldwide effort to eviscerate the dollar hegemony, has entered into overdrive. While the dollar remains the international reserve currency, several countries, particularly China and Russia, have employed various methods to dethrone it.
So far, the most widely used tool has consisted of settling bilateral trade in local currencies.
A New Central Bank ChiefThe president-elect’s office confirmed that Mr. Milei appointed Santiago Bausili as the new central bank chief. Mr. Bausili is a close ally of incoming economy minister Luis Caputo. His nomination needs to be approved by the Senate.
Reports suggest that Mr. Milei is potentially adopting a more gradual form of governing, although he stated that he wouldn’t accept “gradualism” for his unconventional public policy pursuits. However, reports insinuate that the economy team being built signals the prioritization of fiscal reforms instead of eradicating a monetary body and adopting the U.S. dollar.
Mr. Bausili’s appointment could prove essential for an incoming government that could be working out a new deal with the International Monetary Fund (IMF).
In 2019, he led a team that completed an agreement with the IMF, which current President Alberto Fernandez later dropped.
Stagflation FearsMr. Milei has stated that he will call Congress into an extraordinary session on Dec. 11, one day after his inauguration. He will present lawmakers with his plans to bolster the country’s finances.
“There is going to be stagflation, because when you do a fiscal reordering, it will have a negative impact on economic activity,” he said. “What we are doing is creating all mechanisms to stop the emission of money so that in a lapse of 18 to 24 months, we end inflation.”
Economists have said Argentina will slip into a recession next year as the economy is projected to contract by as much as 3.5 percent.
Mr. Milei’s dollarization efforts might also be on the back burner because of the central bank’s depleted foreign reserves. For the past decade, the institution has imposed capital controls under an edict from President Cristina Fernández de Kirchner. This policy limited the ability to buy and sell foreign currency and exacerbated economic distortions. Critics called these measures an “instrument of torture.”
Dollarization might appear to be a tool for stability, although some bank analysts assert that rebuilding the central bank’s reserves by offsetting losses and creating incentives should be the primary objective.