Milei’s Angry Radicalism Isn’t What Argentina Needs

Javier Milei’s unexpected success in Argentina’s national primary election has pushed radical, not to say outlandish, thinking to the front of the country’s politics.

Mounting anger over the economy gave the raging free-market insurgent his preliminary win, and he now looks positioned to do well in October’s presidential election. He certainly isn’t lacking in ambition. He promises to transform the country by dismantling its government, not least by shutting down the central bank and dollarizing the economy.

An economic record as dire as Argentina’s invites some radicalism — but maybe not the kind Milei is pitching. He’s called climate change “a socialist lie.” He wants to free up the “legitimate and responsible” use of firearms. Not content to cut public spending severely, he wants to scrap entire programs (including public health care) and shutter many ministries. Set alongside the rest of this blow-up-the-system agenda, closing the central bank — or, as Milei prefers to say, burning it down — seems almost modest.

For a chronically mismanaged economy, it so happens there’s a respectable case for dollarization. Arguably, it’s already happening spontaneously, as Argentines save and transact as much as they can in dollars. Going further and formally abandoning the peso would make it impossible for the government to finance public spending by printing money, as it has frequently chosen to do. Today’s inflation rate of more than 100% (and rising) is the predictable result of too much public borrowing combined with “fiscal dominance,” as it’s called, over the central bank.

Under the right conditions, governments that deny themselves this option can achieve a degree of restraint that might otherwise be impossible. And this isn’t just theory: Now and then, as in Panama and El Salvador, the idea has been employed to good effect.

The main drawback is that ruling out irresponsible monetary policy also rules out the desirable kind — using interest rates and/or exchange-rate movements to stabilize aggregate demand and cushion economic shocks. The government also loses the seigniorage that accrues from creating cash. Higher taxes would be needed to make up the difference. (Milei calls seigniorage theft, but his plan doesn’t abolish it; the US collects the proceeds instead.)

Unfortunately, while dollarization can sometimes promote discipline, it offers no guarantee. The government would still be able to borrow (in dollars) more than it can repay. And the bill would still come due eventually, not in the form of chronic high inflation but as outright debt default and all the costs that go with it. Meanwhile policymakers would need to manage the complexities of transitioning to the new monetary system, while assuring existing creditors, including the International Monetary Fund, that the new leader and his team know what they’re doing.

Governments that can manage taxes and spending responsibly don’t need to dollarize their economies. Those that can’t will keep on screwing things up with or without their own central bank. The question to ask of Milei and his rivals is not whether dollarization makes sense for the country, but whether they can be trusted to bring sound economic judgment to the task at hand. If the reaction of financial markets to Milei’s win in the primary is any guide, the answer for him is an emphatic no.

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