Some hard caution for Argentina's Milei, from WSJ's Mary Anastasia O'Grady

Most freedom-loving people love Argentina's new libertarian president, Javier Milei. We love his gutsiness, his willingness to cut government, his budget surpluses, his support for Israel, and more. We still do.

But he's not doing the one thing he promised he was going to do, and what made Argentinians elect him: Dollarizing the economy.

Economist Steve Hanke has warned about this earlier, and now Wall Street Journal columnist Mary Anastasia O'Grady has gotten some real story details on what's going on and it's open to non-subscribers:

It’s been four months since Mr. Milei took the oath of office, promising to free the nation from the strictures of Peronism. With a passion for liberty and irreverence for the establishment, he’s generated excitement among long-suffering Argentines tired of a century of government modeled on Mussolini’s Italy. He rails against socialism and endorses Western civilization. He backs Israel, a welcome foreign policy in a region that increasingly bows to Tehran.

Yet Mr. Milei’s talk of freedom is at odds with exchange, capital, and lingering price controls. Monthly inflation for March was below market expectations but still high at 11%. “On an annual basis, headline inflation accelerated to 287.9% [year over year],” Goldman Sachs reported April 12. “Core inflation printed at a lower but still high 9.4% [month over month] in March, reaching 300.0% [year over year].”

In a speech to the nation last week the president boasted that in the first quarter of this year his government achieved a budget surplus—not seen since 2008—of around $309 million, or roughly 0.2% of gross domestic product. This austerity is a main driver of the drop in inflation, down from a monthly print of 25% in December. But it isn’t enough. Inflation expectations remain high. The International Monetary Fund’s inflation forecast for 2024 is 150%, and 45% for 2025.

That sounds pretty crappy, actually, not much change at all, actually, still lots of trips to the moneychangers or dollar shops in Buenos Aires, as Tucker Carlson demonstrated in his video segment.

O'Grady pointed out that Milei seemed to be taking advice to delay dollarizing in order to inflate away Argentina's monstrous socialist debt, which is at 80% of GDP. But he doesn't really have time for this. The economy is at stake and if he doesn't get going, people are going to lose heart:

But the pernicious effects of such a strategy on investment, economic growth and development are undeniable. One question is how long consumers and wage earners will support Mr. Milei if currency uncertainty discourages badly needed capital inflows and there is a persistent decline of real income and purchasing power.

By adopting a credible dollarization strategy immediately, Mr. Milei could stop inflation in its tracks. Instead he’s first trying to address fiscal and regulatory distortions.

She pointed out a lot of rubbish going on that needs fixing as well -- price controls, and exchange and capital controls. Those things create problems, too. Going to dollarization, which is so simple even Ecuador could do it in a 'hold muh beer' way, is the one way out of this and fixes problems instantly.

He's got a leftist legislature that hates him, so all he has without it is IMF-style fiscal austerity. She notes how bad it is:

Now he’s left with only untenable fiscal cuts and his use of inflation to reduce the dollar value of Argentine debt, both of which threaten to induce many months of pain and scare away investors. After a benchmark interest rate cut last week, Goldman Sachs noted that “the central bank has opted to deepen financial repression as a tool to clean its balance sheet.” To the extent it’s working, it’s also eating away at household disposable income, the investment bank said.

That's not going to work, because it never works. What will work was what he said would work during his campaign, which is dollarizing the economy. I hate to be critical of him, I know he's a good guy, but he needs to hold his nose and dive in on the dollarization, which he still says he is going to do, or someone is going to find a way to get rid of him.

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