How Pres. Milei Should Fix Argentina’s Economy
Argentina’s 19 November 2023 presidential elections delivered a surprising landslide for libertarian Javier Milei. The 11-point margin by which Milei beat current Economy Minister Sergio Massa evidences how fed up Argentines are with the 40 years of Peronism that has ruled them since 1983. Milei has a popular mandate, but he will need to make practical accommodations for the ruling coalition his tiny political party needs: it has only a handful of seats in either house of Congress and no governorships.
In light of all that, here is what Dr. Vanessa Neumann told the BBC World Business Report on 20 November 2023 new President-Elect Milei should do to fix Argentina’s economy.
Dollarization Is Not Really the Answer
President-Elect Javier Milei has said he will abolish the central bank to stop its printing money and dollarize the economy. While it is true that triple-digit inflation not only disincentivizes foreign investment, but also prevents local nationals from making coherent life and investment plans (how, can you when you don’t know what price you will pay in one month or six?), dollarization may not be the answer. In the pros column: dollarization tames inflation, removes foreign exchange risk, and reduces corruption by making it subject to the Foreign Corrupt Practices Act (FCPA).
In the cons column: dollarization increases the cost of that sovereign debt, wiping out the dwindling foreign reserves. So it’s a devastating blow to economic planning. Meanwhile, dollarization is irrelevant to big business, whose contracts are already all in US dollars anyway, and to the very wealthy, who have an estimated $250 billion under their mattresses or in their safes, away from Argentine banks.
Here Are Some More Innovative Ideas
- Bring greater numbers of informal workers into the formal economy, by first offering them the benefits of registration (protection of labor rights, access to health, re-training, etc.), before hitting them with taxes
- Cut income taxes, while shifting to a VAT model
- Restructure sovereign debt, as this is effectively already priced in
- Privatize many state-owned enterprises
- Simplify the export code in order to increase trade (and prevent it shifting via Uruguay, as it usually does)
- Utilize closed-loop innovative green energy to develop infrastructure and economic hubs in rural communities (we have a few ideas)
- Use the above to build the distribution infrastructure Vaca Muerta will need, from Buenos Aires to Iquique, Chile to Brazil
- Although Milei is a climate change denier, he could pragmatically use debt-for-nature swaps to offload some of Argentina’s crippling debt, while monetizing its significant environmental assets
Have a Listen
You can listen to Dr. Neumann’s suggestions on how to turn around Argentina’s embattled economy on BBC Sounds here, starting on minute 16.
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