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Argentinian economists call dollarization proposal ‘Mirage’

(Bloomberg) — Argentine economists have rejected a proposal to dollarize the nation, which is backed by presidential candidate Javier Milei. They called the idea a mirage and warned it would spawn a new set of challenges.

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The country does not have the necessary amount of dollars, and efforts to build up supply would mean “absurd” increases in debt, further endangering government finances, dozens of leading economists wrote in a letter released Sunday. Adopting the dollar makes no sense given the complexity of Argentina’s economy and the fact that it has little correlation with the US, they wrote.

Read more: What dollarization offers countries like Argentina: QuickTake

Although the promise of a stable currency creates hope, “international experiences and the situation of our own economy indicate that the proposal in question is far from a panacea and that, on the contrary, it could create several problems for our immediate and future performance. “They wrote.

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Milei, a radical libertarian who rose to prominence in Argentina’s presidential race after a surprise primary victory last month, has proposed replacing the peso in the South American economy with the US dollar as a way to achieve one of the fastest tame the world’s inflation rates. That proposal and others – including a plan to close the central bank – are now causing a significant backlash.

Former Mexican central bank governor Guillermo Ortiz, former Chilean Finance Minister Andres Velasco and Arminio Fraga, who led Brazil’s monetary authority between 1999 and 2003, all criticized the dollarization proposal in a press call last week. Ortiz said it would fail to solve “structural problems,” while Fraga said it “sounds like a magic solution.”

Read more: Argentina’s dollarization is a ‘bad idea,’ top economists say

In the letter, the Argentine economists wrote that the country faces challenges including galloping inflation, instability and rising poverty.

“Let us not – out of myopia and desperation – allow the difficult situation we find ourselves to encourage us to take a false shortcut that will only lead to new and more dramatic frustrations,” they wrote.

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