Global Courant
Positive? Dangerous? A distraction from what’s really important? The dollarization plan proposed by libertarian leader Javier Milei if he became president sparked heated disagreements in Washington between former officials who worked at the International Monetary Fund and were closely following negotiations with Argentina.
The Fund referred this Thursday to dollarization through its communications director Julie Kozack, who said: “It is important to ensure the long-term stability of the exchange rate system finally chosen, and in this sense, dollarization requires important preparatory steps and is not Substitute for sound macroeconomic policies.”
The majority of experts in Washington that Clarín recently interviewed are against dollarization in our country. However, Mark Rosen, who was the US representative to the IMF between 2019 and 2021, surprised this week in an interview with the Bloomberg agency by saying that “dollarization would be very positive for Argentina.”
“It would basically largely eliminate the risk of future inflation, which is a big problem. “It wouldn’t necessarily address the issue of spending, but it would anchor monetary policy and it would be a big positive change,” added Rosen, who was tapped by President Donald Trump for his position at the agency at a time when the agency was still active Fund was nominated and granted him the loan. 57 billion US dollars (44 billion paid out) to the government of Mauricio Macri, who later lost the elections.
Rosen argues that dollarization would help Argentina because it would likely be a permanent change that a future government could not reverse. “Dollarization makes sense if you can finance it,” Rosen said. “The problem is: Can they finance it? And will the international community fund it?”
Shortly after his position was announced, a former colleague of his, Mark Sobel, commented in a succinct tweet: “I am also a former US representative to the Fund and a long-time official at the Treasury Department with IMF oversight responsibilities .” . As I have written before, dollarization is a dead-end strategy, potentially dangerous and a distraction from the hard work that needs to be done.”
And he included a column published last month asserting that “dollarization is not the answer” to Argentina’s problems and that it is “a dead-end strategy that is potentially dangerous because it lays the foundation for a… “Collapse”. Sobel knows our country’s economic ups and downs well because he was the official who replaced Rosen in the organization and witnessed the program’s failure.
Another former official who was heavily involved in the Argentine case is Alejandro Werner, former director of the organization’s Western Hemisphere Department, who served for 13 years not only during the administration of the largest IMF loan, but also at the beginning of the administration This position was held by Alberto Fernández when it had to be renegotiated.
Consulted by Clarín, Werner was very harsh on Rosen: “I think Mark is not a reference on monetary issues, public finance or public policy. He is a Bank of America investment banker who took over as managing director of the fund when Mauricio Claver Carone left for the White House. He was only at the IMF for a short time and is therefore not a person who knows the fund or is familiar with public policy issues, let alone an expert on foreign exchange and currency issues. In his opinion, Argentina would benefit from dollarization. It is a valid opinion like that of Emilio Ocampo and other people. I disagree, but I think it’s a coherent discussion.”
“The debate is whether Argentina should continue trying to build a viable national currency or give up and adopt the dollar. I think it’s a healthy debate. I am on one side and there are those who are on the other side,” said Werner. “The most important question that officials in Argentina should ask themselves when it comes to finance is: Will Argentina be able to use the dollar in the next two years? I don’t think so,” he says.
And he adds: “What conditions does Argentina need to think about dollarization?” They are similar to what you need to build a currency. In other words, it must begin with stabilization, gradually remove balance of payments controls, and eventually gain access to international capital markets. To achieve this, we need to have much healthier public finances, undertake a significant fiscal correction and pursue tight monetary policies in the short term that help reduce inflation. In this sense, Argentina must today focus on stabilization, on how to address budget surpluses and budget imbalances, how to organize the foreign exchange market and maintain capital controls.”
“In the short term, dollarization distracts attention from what is important for Argentina,” Werner said. “The question is: Who will lend you the millions of dollars you need for dollarization? For a country that doesn’t have access to capital markets, it’s very difficult to raise $40 billion,” the former official says, adding that Rosen “just has a different opinion, but he’s not someone who’s in a bank “Central or in the US Treasury Department and I spent only a little time as a tourist at the Monetary Fund, barely a year.”
