TRUMPISM HAS NEVER WORKED:

Javier Milei and the Promise of a New Argentina (ALEJANDRO A. CHAFUEN, DECEMBER 15, 2023, Religion & Liberty)

Despite its name, derived from Argentum (silver), Argentina did not get rich owing to its mineral wealth. The country has little or no silver. Argentina began its road to prosperity only after General Justo José de Urquiza (1801–1870) defeated Juan Manuel de Rosas (1793–1877), the powerful governor of Buenos Aires, then and now the wealthiest province in the country, with the aid of Brazil and Uruguay. Urquiza became president in 1854 and adopted the Constitution inspired by the work of Juan Bautista Alberdi (1810–1884), a legal scholar and political theorist well-versed in economics. The 1853 Constitution created the legal framework that propelled Argentina’s economy.

Argentina endured ups and downs, but from the mid-19th century until the 1930s and ’40s, it experienced high economic growth. In fact, it overcame the Great Depression of 1930 faster than most other countries. However, the financial crisis of the 1930s created incentives for some of the world’s leading intellectual centers to explore new economic policies. Economists at the leading universities around the globe started devising various interventionist and statist schemes. The economic policies of the New Deal, Keynesianism, and fascist corporatism had a worldwide impact. Unfortunately, Argentina copied many of them. Its labor law was a copy of Mussolini’s Carta di Lavoro, for example. Although there have been periods of liberal economic policies during the past eight decades, the trend has continued toward increased interventionism, and the result has been dire poverty. Today, estimates from the Argentine Catholic University Center report that almost 45% of the population lives in poverty.

WITH THE BARK ON:

Argentina devalues currency by 50% in ‘shock’ measure against hyperinflation (france 24, 12/13/23)

The International Monetary Fund (IMF) — to which Argentina owes $44 billion — welcomed the measures.

“These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime,” the IMF said in a statement.

Caputo announced the exchange rate would slide to 800 pesos to the dollar, from about 391 in recent days, a devaluation of a little over 50 percent

The Argentine government has for years strictly controlled the exchange rate of the peso to the dollar, which analysts have derided as an expensive fiction.

There was no immediate mention of lifting the controls which have birthed a multitude of dollar exchanges and a thriving black-market where the dollar has sold for up to three times the official rate at times.

“The devaluation was much, much more than I think most people had expected,” said Nicolas Saldias, a senior analyst with the Economist Intelligence Unit, adding this would have “significant impacts on inflation.”

IMPORTING DISCIPLINE:

Lessons from Argentina’s Dollarization Debate: The Challenge of the Commitment Device (Nicolás Cachanosky, December 11, 2023, AIER)

Unlike a fixed peg or a currency board, a government cannot easily abandon dollarization.

Argentina has frequently abandoned fixed pegs. It has also voided peso convertibility to the US dollar. These options are unavailable under dollarization. De-dollarizing would require the government to introduce an entirely new currency that the public does not want. Consider the challenge of currency in circulation. Would the government go into individual houses and compel owners to exchange their US dollars for a new currency they reject? A dictatorship might pull off such a move. But in a democracy such a move would likely see incumbents ousted.

The experience of Ecuador illustrates the point. Rafael Correa, who was president from 2007 – 2017, was an outspoken opponent of dollarization. But he never openly announced plans to de-dollarize Ecuador. His attempt to introduce the dinero electrónico was a total failure. As popular as Correa was, he couldn’t surpass the popularity of the US dollar.

As a monetary regime, dollarization is an institution independent of local politics. That would make a big difference in Argentina, where the average terms of the Ministry of Economics and the Central Bank president are only 1.4 and 1.5 years, respectively. Argentina cannot offer a predictable fiscal and monetary policy with key officials turning over so frequently. Since dollarization is difficult and politically costly to reverse, it establishes credibility in countries where other options are not viable.

KICKING THE CAN DOWN THE ROAD DOESN’T SEEM TO WORK:

Is there a way out for Argentina? (Monica de Bolle, 11/28/23, PIIE)

To better understand Argentina’s cycle of economic crises, it helps to trace the history of Peronism from its original goal to turn away from the nation’s largely agriculture-based economy, which was overly dependent on international fluctuations of commodity prices, and toward industrialization using whatever means necessary: protectionism and subsidized credit for selected sectors, combined with targeted government social welfare spending for favored population segments. Adopting the advice of so-called dependency theory advocates, Perón also created labor protections for the new urban-industrial labor force, as well as several state-owned enterprises. In a pattern that was to be repeated over many decades, enactment of these policies between 1946 and 1955 increased Argentina’s budget deficits, its external debt, and balance of payments vulnerabilities, laying the groundwork for future boom and bust cycles.

By 1977, the country was suffering its first bout of hyperinflation, with an annual rate of over 300 percent. In 1978, an inflation stabilization plan was attempted, and it succeeded in halving the inflation rate for a short period. But in 1981, the country had a severe balance of payments crisis, which led to a debt default accompanied by a banking crisis. By 1985, inflation had spiked to more than 670 percent, forcing the adoption of the Austral Plan. The currency’s name was changed from the peso to the austral, wages were frozen, the exchange rate was fixed, and spending was slashed for a brief period. Ultimately, the Austral Plan failed, and by 1989, inflation had reached more than 3,000 percent. Argentina’s attempts at stabilization involved several IMF programs generally calling for tough austerity measures, including budget cuts, deregulation, and a floating currency.

In 1991, Argentina adopted the so-called Convertibility Plan following several reforms, including some designed to rein in the budget deficit, which succeeded in eliminating the country’s hyperinflation and restoring stability for a time. Over the next decade, Argentina fared somewhat well despite a banking crisis in 1995. By the late 1990s, other problems associated with growing domestic imbalances were aggravated by external shocks stemming from emerging-market crises of that period. Spurred in part by commodity price fluctuations and financial panics, these crises took their toll on the economy.

When Brazil was forced to devalue its currency in 1999, Argentina’s fixed parity with the dollar accentuated its lack of competitiveness, further weakening its already fragile economic situation. In 2001, Argentina finally faced its demons, abandoned the Convertibility Plan, and suffered its worst financial crisis in modern times. The crisis involved a complex debt default, a collapse of the banking system, and a deep recession. By 2003 the outlook had improved significantly as a result of rising commodity prices in international markets.

During the worst of the turmoil in 2001, Argentina became famous for its revolving door of five presidents in only 12 days. Eduardo Duhalde, appointed as interim president by Congress in January of 2002, would see the country through the aftermath of the crisis, handing the presidency to Néstor Kirchner in 2003 following his victory in the 2003 elections. During his time in office, Argentina grew at an average clip of about 8.5 percent annually fueled by high commodity prices as well as some domestic reforms. In 2007, Néstor Kirchner’s wife Cristina Kirchner was elected president. Néstor had planned a comeback to power, but he died in 2010, one year before Cristina was reelected for a second term.

Cristina Kirchner’s time in office, from 2007 until 2015, became the hallmark of what is now known as Kirchnerism, a mixture of ad hoc government interventions in the functioning of markets—including setting or freezing certain prices—and tinkering with Argentina’s statistics, particularly with official inflation data. Her tenure was plagued by fiscal irresponsibility and corruption scandals. Argentina did manage to avoid a major financial crisis during her time in office, helped by high commodity prices and investments from China, but it remained vulnerable to crises. Cristina’s successor, Mauricio Macri, failed to resolve inherited and newly created problems, helping to lead the economy to its current state.

ESCAPING NATIONALISM/SOCIALISM:

New Argentine Leader’s Economic Savvy: Whether Milei will free his statist economy is still unknown. But his understanding of crucial principles gives him a head start. (David R. Henderson, 12/07/23, Hoover: defining ideas)

Argentina’s economy and Argentina generally are in bad shape. That’s the result of decades of policies that follow the playbook of Juan Perón, the president of Argentina from 1946 to 1955 and again from 1973 to his death in 1974. Those policies consisted of heavy welfare spending, government nationalization of selected industries, and making the government the monopoly purchaser of grain, to name three. Various scholars have referred to Peron’s policies as fascistic. That charge is probably overstated. As Sheldon Richman wrote in his article on fascism in The Concise Encyclopedia of Economics, “fascism is socialism with a capitalist veneer.” Richman explained, “Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners.” Perón didn’t go nearly as far as Mussolini did. Think of Peronist economics as “fascism light.”

Javier Milei wants to move in the opposite direction, by freeing Argentina’s people from government control of their economic activities. The uncertain news is that we can’t know how successful he will be. The good news is that, not surprisingly for someone who has been an economics professor, Milei shows a deep understanding of economics that will serve him, and Argentina, well.

PRE-DOLLARIZED:

Argentina’s Rampant Inflation, Explained (in One Chart) (Jon Miltimore, December 5, 2023, AIER)

The New York Times, which recently interviewed Capobianco, reported on the inflation that “has convulsed Argentina” and led to the rise of Javier Milei, who last week became Argentina’s first libertarian president (and arguably the first libertarian president in the world in modern history).

Prior to Milei’s stunning victory, inflation in Argentina hit 143 percent. Triple-digit inflation has helped push 40 percent of Argentines into poverty and has led to a surge in demand for US dollars.

An estimated $200 billion in US currency has gravitated toward Argentina’s $487 billion economy, the Times estimates, nearly 10 percent of all US dollars in circulation (more than any other country in the world except for the USA).

The appeal of US dollars in Argentina should come as little surprise. The purchasing power of the peso is depreciating so fast that people continually swap them out for dollars, which are hoarded.

“You’re constantly gathering up money quickly in order to buy dollars,” a 30-year-old supermarket worker told the newspaper, “because the next day, it’s devalued again.”

MAYBE NATIONALISM/SOCIALISM HAS FAILED FOR LONG ENOUGH?:

Argentina Agonistes: The Separation of Money and State (Michael Munger, November 29, 2023, AIER)

Argentina is in many ways an advanced nation with a moronic government, saddled with the ditzy wishful thinking of Peronism. Argentina has a tax collection/compliance rate of less than 40 percent, more characteristic of a third world nation. As Leonidas Zalmanovitz pointed out last week, the real problem is a consensus on reducing inflation, not fiddling with rules.

Still, rules and institutions matter. Combining the “generosity” of Peronism, albeit generosity with the money of others, and the inability to collect taxes, has meant that the government has systematically gutted the value of the already threadbare peso. That issue, more than any other, is the reason that an outsider such as Milei was able to win by nearly 20 percent of the vote, a landslide rejection of orthodoxy. It is worth taking a step back and considering the sources of these “Argentina Agonistes,” and thinking about Milei’s core promise: the separation of money and state. I wonder if future generations will look back and wonder, “what took them so long?”

ALWAYS TAKE THE DRUNK’S KEYS:

Milei’s dollarisation plan isn’t as crazy as it sounds (Ben Ramanauskas, 11/28/23, Cap X)

As the great economist Simon Kuznets once said, ‘There are four types of countries in the world: developed, underdeveloped, Japan, and Argentina’. The economy of Argentina continues to confound economists. Despite once being one of the wealthiest nations on Earth, it is now an economic basket case which experiences endless cycles of borrowing, money printing, high inflation, and default due to the failed policies of its politicians – and it is the ordinary people who see their livelihoods destroyed. There is nothing normal about Argentina’s economy.

Moreover, an independent central bank only works if it is actually independent and run by competent officials. This is hardly the case with Banco Central de la República Argentina. It has enabled successive governments in their profligacy by excessive money printing which has led to inflation of over 142%.

Dollarisation is perhaps the only thing which can help to put an end to Argentina’s rampant inflation. Milton Friedman wasn’t quite right when he said that inflation is always and everywhere a monetary phenomenon. However, he was spot on with Argentina. The central bank has printed so much money that the peso has been completely debased. Replacing it with the much more valuable US dollar would help to put an end to this and get inflation back under control.

This is not just economic theory – the experience of other countries show that this can work. El Salvador, Ecuador, and Panama which have all dollarised and Peru which has semi-dollarised all have the lowest inflation in the region, and the fully dollarised nations have seen their GDP per capita surpass that of Argentina in recent years.

SHOCK THERAPY:

The appeal of Argentina’s radical libertarian Javier Milei (HARRIET MARSDEN, 11/21/23, THE WEEK)

Despite the “fervent” support for Milei, his success owes more to the failures of his opponent, said Sam Meadows in The Spectator. Sergio Massa took the lead in October’s first poll, with Milei coming second, but the finance minister’s “inability” to tackle the nation’s economic woes over the past year “ultimately proved an electoral millstone he was unable to shrug off”. Inflation is the fourth highest in the world, and the country owes “gargantuan” debts to the IMF. […]

After spending most of a century “in thrall to one self-destructive economic ideology”, said the Financial Times’ newsletter “Trade Secrets”, Argentina has “decided to have a shot at another” after Milei takes office in December. “How a country manages to hop straight from Peronism to reactionary anarcho-capitalism without ever having a go at boring old liberal social democracy is a wonder to behold.”