Then-Argentina Central Bank President Luis Caputo speaks at G20 Argentina’s forum on Market Forces at Work – Institutional Investors and a Sustainable World. April 19, 2018. License. Photo courtesy of G20 Argentina.
At the Cato Institute, Daniel Raisbeck and Gabriela Calderon de Burgos take issue with Javier Milei’s finance minister, Luis Caputo, and his implementation (or lack thereof) of Milei’s dollarization plan. They write:
In a recent interview, Caputo confirmed that the government does intend to honor Milei’s dollarization pledge, but only once his “stabilization plan” has been fully implemented. It is thus clear that Caputo regards dollarization as a far‐off destination, not a point of departure. We believe this approach is mistaken and risks a far more painful dollarization than necessary in the future.
In fact, Caputo’s measures—maintaining capital controls and exchange rate restrictions while letting inflation run high—run directly counter to dollarization, as do all other remaining distortions of Argentina’s foreign trade, such as the dollar withdrawal tax and taxes on imports, which Caputo increased. As economist Alberto Acosta Burneo argues, these measures do little to create confidence and attract dollars into the formal financial system, which is what Argentina desperately needs.
Indeed, there seems to be an inherent contradiction between annual inflation levels headed towards 300 percent, a subsequently weakening peso, and the stated hope to accumulate $30 billion to stabilize the economy, which Caputo considers a prerequisite to dollarization.
In the midst of a much‐needed deregulation spree, it is telling that Milei’s government has not removed trade operations from the control of the central bank, which continues to hold a monopoly on access to the dollars necessary to pay for imports. Ecuador, a country which dollarized in 2000, freed the market for dollars in 1992 by allowing importers to access foreign currency, thereby eliminating the central bank’s prior monopoly. Thereafter, it no longer mattered whether or not the central bank had enough dollars to pay for imports, since importers could acquire dollars on the free market. This did not solve Ecuador’s monetary problems because it kept a national currency for eight more years, but it is a necessary condition for dollarization.
Read more here.
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