Daniel Raisbeck, analyst on Latin America at the Cato Institute, told Infobae from Washington that the president-elect should not be compared to Trump or Bolsonaro and affirmed that dollarization will bring prosperity to the common citizen.
Daniel Raisbeck del Instituto Cato
Daniel Raisbeck (41), analyst on Latin America at the Center for Global Liberty and Prosperity of the Cato Institute, said that Javier Milei will be able to dollarize to eliminate inflation and relativized the importance of having the support of the US to achieve it.
In a telephone interview with Infobae from Washington, this Colombian historian from George Washington University and the Free University of Berlin, columnist for The Wall Street Journal and Foreign Policy, said that Milei should not be assimilated with Donald Trump or Jair Bolsonaro.
- How do you evaluate Milei's victory?
- It is of utmost importance for Argentina of course, but also for the region. He has an impressive political talent because of his ability to communicate these liberal ideas to any person, to common people. That is something huge because it is not easy. However -and without taking any merit away from him- it also seems to me that it is the result of a long-term work because Argentina has the most sophisticated ecosystem of liberal think tanks in Latin America. Not only because of Alberto Benegas Lynch’s father or son, but also because of many liberal economists and academics who have worked for many years in this direction.
- Did that help him?
- It helped him to have been a singer and a soccer player instead of the traditional liberal academic and of course the situation in Argentina with an inflation rate above 140 percent per year, the currency absolutely destroyed in the last three years, a brutal devaluation, price controls and export taxes. I think he was able to explain to the people what were the reasons behind the frustration they feel because it is not easy to talk in terms of inflation and figures, but people feel it at these levels.
Javier Milei, Mauricio Macri and Patricia Bullrich, in the first meeting together after the victory in the ballot.
- Did the poor economic performance of Mauricio Macri's government influence his success?
- The fact that Macri's government failed had an influence, as it undoubtedly took away credibility from that political space, since they governed a short time ago. The former president's credibility was low. And Bullrich did not master economic issues.
- What practical anchorage, what examples are there of the anarcho-capitalist model proposed by Milei?
- Anarcho-capitalism is a branch of classical liberalism; this classical liberalism defends the minimal state that fulfills certain very basic tasks and nothing beyond that, but anarcho-capitalism is simply a criticism that comes from the same tradition and says that the state, however minimal it may be, will grow and create all the problems; so it is better to simply think of eliminating the state and that everything is done through contracts between private parties, between individuals or companies. But of course, that remains in the theoretical sphere and his anarcho-capitalism is not like what he will have to do as president of a country, which will be more of a minimalist government, where he has to reduce that gigantic state that has grown in Argentina to its right proportion.
Neither Trump nor Bolsonaro
- Is it logical to compare him with Trump or Bolsonaro?
- It may be because of his charismatic style, but it is a rather superficial analysis because if one goes to the bottom and sees the proposals and what Milei and his mentors really propose is to return to an Alberdian liberalism such as the one that gave rise to the Constitution of 1853, which gave rise to the great prosperity that Argentina had.
Donald Trump and Jair Bolsonaro
- So, we should not expect a government like both of them?
- No. It is true that Trump lowered taxes and eliminated some regulations, but he was nationalist and protectionist, while Milei proposes to open to the world and wants to dollarize. Bolsonaro was also a nationalist, but he had to adapt because a very important liberal movement was also emerging in Brazil and that is why he also added Paulo Guedes as minister of economy.
Milei, on the other hand, comes from a completely different tradition at an intellectual level; he is not a tycoon like Trump or a military man like Bolsonaro, he is a liberal academic who will not have an interventionist government, but quite the opposite, and he has even spoken of a unilateral opening.
- There were several economists outside Argentina who criticized dollarization arguing that it takes away the country's freedom in the face of an external shock and, in addition, that it may reduce inflation in the first instance but then generates other problems.
- People who are speaking against dollarization in Argentina do not really understand how it has worked in Latin America, because they have not analyzed in detail the cases of Panama, Ecuador, and El Salvador. Those who say that dollarization is not possible if there are no dollars do not understand how dollarization works, because bank deposits are dollarized immediately and in Ecuador and El Salvador this did not lead to a run on the banks, but the opposite: it generated confidence in the banking system and deposits increased massively. In fact, in Argentina people have dollars either abroad or, as you say, under the mattress. On the other hand, circulating money is not dollarized from one day to the next; in Ecuador there was a period of 9 months where the sucre circulated together with the dollar.
What has to be done is to dollarize at a market rate; in the case of Ecuador, it was at 25 thousand sucres and in El Salvador it was 24 months voluntarily where 90 percent of the circulating money was dollarized. Therefore, I do not see why it cannot happen in Argentina if it is done in the right way.
Former President of Ecuador Rafael Correa Europa Press/Contact/Ivan Stephens
- Ecuador, however, has maintained serious fiscal problems and debt crisis despite having dollarized.
- Dollarization is not a magic wand, it does not solve all problems. Ecuador and El Salvador have not had great economic growth, but Panama has. Dollarization eliminates the problem of inflation and devaluation in a country where people are obsessed with the dollar. I came back from Ecuador last week and nobody cares about the price of the dollar, because they are dollarized, they are not thinking about how much the dollar went up last week or last month.
- The counter argument is that the rest of Latin America, with the exception of Venezuela and Argentina, have brought inflation down sharply with a credible central bank and fiscal surplus, without dollarization. And they manage to maintain their monetary policy to soften external shocks, in very different countries such as Paraguay, Bolivia or Brazil. Why not follow this path?
- If you look at inflation in dollarized countries in the last 3 years it was lower than in the United States and in non-dollarized countries it was higher. The other question is, given Argentina's track record, even if there is an agreement in this government to have a surplus and a credible central bank, then Kirchnerism can come back and undo everything, because it is relatively easy to violate those fiscal rules while with dollarization you can no longer go back, neither devalue nor monetize. For example, as President Rafael Correa wanted to de-dollarize and did not succeed even at the peak of his popularity, because people did not want the dollar to be taken away and return to the sucre.
- But, as I was saying, Ecuador has not solved its fiscal or debt problems.
- Because dollarization is not a guarantee of good fiscal management, but when it defaulted in 2020 it hardly affected the common citizen, who kept his purchasing power. On the other hand, if the country defaults with a national currency, there will surely be devaluation and it will have to raise interest rates considerably to stop it, and devaluation is also a terrible tax like inflation, because it reduces the purchasing power of ordinary citizens.
Inflation and the U.S.
- How long can it take to reduce inflation that, annualized, is running at 300%?
- It depends on how the announcements are made, but no less than a year.
- Could there be hyperinflation in the middle because of the large amount of repressed prices?
- It is a valid fear because of repressing prices; nothing that is coming is pleasant to solve the country's problems, not even in the medium term.
Fearing hyperinflation is valid because of repressing prices; nothing that is coming is pleasant to solve the country's problems.
- How do you imagine the relationship with the U.S. beyond the fact that now there is Biden and in 2024 Trump may win?
- Latin America is not a priority for the United States, except for the migrant crisis. All the recent attention has been placed in Ukraine, China and now Israel. Anyway, Milei said that he wants to align himself with the United States and that may be good, but it does not take away from the fact that Washington's focus is not on the region.
The IMF is not convinced of the benefits of dollarization Reuters.
- Does that mean it will be difficult to get support from the IMF or the World Bank?
- When Ecuador dollarized in 2000 they did not even notify the U.S. Treasury Department and the IMF opposed it. I know that Milei met with them, and I would not be surprised if there was resistance to dollarization from the IMF as well, because part of their role is to train central bank officials, so it is not in their interest for someone to say they are going to shut it down.
- Is it possible for the new government to obtain financing from the market despite the skepticism generated by Argentina?
- It would be ideal and in this sense a drop in inflation will be positive because that will reduce interest rates within Argentina. Furthermore, Milei said that he intends to meet the country's obligations.
- If Trump were to win, could he have more support from the U.S.?
- Well, he already congratulated him and, although they come from very different lines of thought, they both consider that fighting the left is very important.
This article was originally published in Spanish in Infobae.
