A right-wing presidential candidate wants to change Argentina's currency to U.S. : The Indicator from Planet Money In a little over a week, Argentines will head to the polls to pick a new president. Polls show a tightening race between right-wing populist Javier Milei and centrist challenger Sergio Massa. Both are pledging to address the country's out-of-control inflation. Today on the show, we look at Milei's radical proposal to change Argentina's currency to U.S. dollars and whether that could fix inflation.

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A radical plan to fix Argentina's inflation

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SYLVIE DOUGLIS, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, “WAKING UP TO THE FIRE”)

WAILIN WONG, HOST:

In just over a week, Argentina will head to the polls to vote in a new president, and one candidate is making some pretty big waves in this tight race. He's a trained economist who thinks he can solve Argentina's triple-digit inflation dilemma. We've talked about Argentina's high inflation on THE INDICATOR before, and right now that number stands at close to 140%. Reporter Sharon Beriro is here to tell us more about this candidate, who says he has a bold plan to bring this number down. Hey, Sharon.

SHARON BERIRO: Hey, Wailin. Yeah. So this candidate's name is Javier Milei.

WONG: I think he's been making headlines outside of Argentina, too. I've definitely seen him in the news here.

BERIRO: Oh, yeah. You know, you probably have. And he's got quite an interesting look - thick eyebrows, bushy sideburns and icy blue eyes. So just picture if Beethoven and Elvis Presley had a kid.

WONG: And he really brings in the crowds too, right?

BERIRO: Oh, for sure. I mean, he's passionate.

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JAVIER MILEI: (Speaking Spanish).

WONG: Once he gets going, he's just at a full-on yell.

BERIRO: Oh, yeah, for sure. And actually, in that speech, he was pretty excited because, I mean, he had just won the largest share of primary votes. And that was actually surprising to a lot of people, considering his lack of experience.

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MILEI: (Speaking Spanish).

BERIRO: What he was talking about was that his party, Freedom Advances, is going to bring real change to Argentina, mostly by getting rid of the old guard and bringing in new people.

WONG: Now, Milei loves to call himself an anarcho-capitalist, which others have translated to right-wing libertarian. He's also an avid Trump supporter and an adversary of socialism. But he actually got popular because most of his policy ideas are pretty radical. Like, he wants to privatize state companies and abolish the central bank.

BERIRO: Yes. And perhaps his most controversial one yet - dollarize the nation...

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BERIRO: ...Which is exactly as it sounds - adopting the U.S. dollar as the official local currency.

WONG: Argentina wouldn't be the first. A handful of countries around the globe are already dollarized, but it would be the largest economy so far.

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WONG: This is THE INDICATOR FROM PLANET MONEY. I'm Wailin Wong.

BERIRO: And I'm Sharon Beriro. On today's episode, dollarization - how it works, its track record in other countries and whether it can solve Argentina's inflation woes.

WONG: Today we're talking about Argentina dollarizing, so we should first do some dollarization 101.

BERIRO: Generally, when a country decides they want to dollarize, they're looking to replace the national currency with a foreign one - usually the U.S. dollar.

WONG: Some countries, like Ecuador, for example, did it to reduce sky-high inflation. And that's kind of the reason why Javier Milei likes it. For most of the past two decades, Argentina has experienced double-digit inflation. And despite the efforts of various presidents, not a single one has been able to revive the economy.

MARTIN CASTELLANO: So in this context, the candidates proposing the most radical changes in economic policy are the ones that are on top in the most recent polls for the coming election.

WONG: That's Martin Castellano, the head of Latin American research at the Institute of International Finance. For decades, Argentina has gone through many cycles of excessive spending without the actual income to back it up. To make up for the resulting high debt, the nation's resorted to printing more money. The upshot is year after year of high inflation and, as many Argentines say, a slippery currency.

CASTELLANO: People now in Argentina all the time are worrying about - what is the exchange rate? The country has almost 20 different exchange rates.

BERIRO: Just to paint a picture, to exchange pesos on the official rate, you need to visit a bank, and you can only take out $200 a month. But there's actually other ways you can exchange pesos. Unofficially, you can visit newspaper stands or these small, little shops that have a room way at the back.

WONG: Yeah. And there's also an exchange rate for those who buy luxury goods or for those booking foreign musical artists - I wonder what the Taylor Swift exchange rate is - and lots of other random things. Even so, the value of the Argentine peso has become so depreciated that many residents are adopting the U.S. dollar for savings and investments - perhaps more than anywhere else in the world.

CASTELLANO: Basically, the dollarization regime has never been put in place, but people just use the dollars on a more generalized and widespread fashion. So the economy, de facto, has become dollarized.

BERIRO: But de facto dollarization isn't what Milei is campaigning for. Milei is looking for replacement of the Argentine peso with the U.S. dollar, and that's a much bigger deal. It means that Argentina would lose control over its own economic policies in terms of printing money or adjusting interest rates to regulate its money supply.

WONG: Instead, those functions would be controlled by the U.S. and the Federal Reserve. Several countries have done this. Take Ecuador. In the late '90s, its inflation was running at high double-digit levels back then. Different banks had failed, and it was in a deep recession.

BERIRO: So in 2000, they adopted the U.S. dollar as legal tender. And actually, ever since then, inflation has been historically low, and poverty levels have gone down a great bit. But Martin says that even though dollarization helps bring inflation down, in the long term, there are still issues. It doesn't actually solve for internal problems like taxation or trust in banks or government spending.

WONG: It also doesn't account for things like how much a country produces, unemployment levels or international trade. So could this work in Argentina? Martin says, in theory, it should, but he doesn't think it actually will for one key reason - implementation.

CASTELLANO: Implementation is just going to be quite problematic, in my view. And the main reason is the central bank has basically run out of usable reserves.

WONG: In order to pull this off, the Argentine central bank has to swap all of the country's pesos for dollars, and they just don't have the money to do it. Martin says it would cost about $30 billion to dollarize Argentina. It could try and raise dollars in the market, but there isn't much investor interest.

BERIRO: Still, though, Milei and his advisers actually think there's a different way for them to fund dollarization.

CASTELLANO: Argentinians have assets in dollars abroad, so there is an expectation that, with dollarization, people would bring those assets and that'd help stabilize conditions.

BERIRO: But again, Martin isn't convinced this will happen. He says Argentines built wealth in foreign assets to protect themselves from the economic chaos at home, and they're unlikely to trust their government to turn things around. Even if they did, he doubts it would be enough to fund dollarization.

WONG: Now, this wouldn't be the first time Argentina has considered switching to dollars. Back in the early '90s, the nation found itself in a similar position - inflation, economic uncertainty, rising poverty and fed-up people. They actually pegged the peso to the dollar with plans to fully dollarize. But then the country entered a deep recession, and that plan was abandoned. Which begs the question, Sharon - what makes dollarization in 2023 any different?

BERIRO: Well, Wailin, I think a lot of this rests on just how popular Javier Milei is. His right-leaning populist strategy and success is reminiscent of a number of political campaigns we're seeing around the world.

WONG: And for Argentines who are exhausted from decades of inflation, his platform is seen as refreshing amidst all the economic chaos. On November 19, they'll get to vote. And as of now, polls show a tightening race between Milei and centrist challenger Sergio Massa, the country's economy minister. Whatever happens, the economic stakes are high.

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WONG: Sharon Beriro, thanks so much for bringing us this story.

BERIRO: Oh, it was a pleasure. This was so much fun, Wailin.

WONG: This episode was produced by Julia Ritchey with engineering by Kwesi Lee. It was fact-checked by Sierra Juarez. Kate Concannon is our editor, and THE INDICATOR is a production of NPR.

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