Follow us:

Hi, what are you looking for?

Latin America

Argentina adopting US dollar to fight inflation would be ‘insane’ neocolonialism, says economist Ha-Joon Chang

Right-wing politicians in Argentina want to adopt the US dollar as the national currency to fight inflation. Development economist Ha-Joon Chang said this is “insane”, warning dollarization would make the Latin American nation a “colony”.

Argentina inflation dollarization

Argentina is suffering from high rates of inflation, largely due to odious debt owed in US dollars to the International Monetary Fund (IMF) and Western vulture funds.

The South American nation sometimes suffers from a current account deficit, and relies heavily on imports of oil, technology, and medical equipment. Low revenue from its mostly agricultural exports means that Argentina faces a chronic shortage of foreign currency – and most of the dollars it gets end up flowing out of the country to paying interest on the unsustainable external debt, draining the country’s foreign-exchange reserves and making it difficult to stabilize the national currency, the peso.

National elections are approaching in October, and among the presidential hopefuls is far-right politician Javier Milei.

Milei describes himself as a “libertarian” and is running on an extreme neoliberal platform, pledging to slash all social spending, privatize the health system, sell off state companies, remove all currency controls, and abolish the central bank – while simultaneously militarizing the country, giving police more authority to arrest “criminals”, and building private prisons.

Despite his “libertarian” pretenses, Milei vowed to make abortion illegal as well, promising to take Argentina “back to being the thriving country that we were at the start of year 1900”.

Milei’s proposed solution to end inflation is for Argentina to abandon its monetary sovereignty, drop the peso, and adopt the US dollar as the country’s official currency.

His call for dollarization has been echoed by fanatical Austrian School economists like former Ronald Reagan advisor Steve Hanke, who is publicly supporting Milei and tweeted, “It’s time to dump the pathetic PESO and DOLLARIZE NOW“.

Prominent South Korean development economist Ha-Joon Chang has shot back, denouncing this as “the worst idea” and “insane”.

Chang warned that dollarization would turn Argentina into a US “colony”.

In an interview during a visit to Argentina this May, first reported on by Nick Corbishley at Naked Capitalism, Chang explained:

If you want to adopt the dollar as your official currency, you should apply to become a colony of the United States of America, because that’s what it makes you. Because this means that your macroeconomic policies will be written in Washington, DC.

Now, in a big country like the United States, actually, when the macroeconomic policies are made in Washington DC, there will be states elsewhere in the US that suffer, because the federal government might be tightening the economy, because in general there is inflation, but then in some regions there might already be recession, and then they’ll be in big trouble.

So the fact [that it is] a single country, what you do is you make transfers to these regions suffering from recession. And, most importantly, people in those regions in economic recession can move elsewhere, to take up jobs in the areas that are doing well.

A fiscal union and labor market integration are the necessary conditions for this to make the currency union viable.

And the reason why the Eurozone had such crisis was because they didn’t do this enough. The labor market is integrated, but there’s a language barrier; so it’s not perfect. There is no fiscal union, so they cannot make a transfer to the poor regions. So this is why they had such trouble.

Now, Argentina unilaterally accepting the US dollar as a currency is insane, because you don’t have labor market integration; you don’t have fiscal transfers.

It’s not as if the [North] Americans are going to say, ‘Oh you cute guys in Argentina, now that you want to use the dollar as your currency, we will accept more immigrants from you; we’ll give you some money’. No.

This is the worst idea.

While Latin America’s left wants to de-dollarize, the region’s right dollarizes

While Argentine right-wingers are calling for dollarization, the left across Latin America – and in many other parts of the Global South – are advocating for de-dollarization.

The government of Brazil’s President Lula da Silva has initiated research to develop a currency for trade within the region, which will tentatively be called the Sur.

This issue is clearly important for Lula, because he used his first foreign trip after returning to the presidency in January, a visit to Argentina for the summit of the Community of Latin American and Caribbean States (CELAC), to publicly announce the plans to develop the pan-Latin American currency.

Argentine’s current, center-left government has joined China’s Belt and Road Initiative and signed several economic agreements with Beijing, including currency swap lines between the countries’ central banks, seeking to replace the dollar with the renminbi in their bilateral trade.

Argentina, which has the third-largest economy in Latin America, has also formally applied to join the BRICS bloc, joining its neighbor Brazil, which has the biggest economy in the region.

There are two countries in Latin America that already use the dollar as their national currency: El Salvador and Ecuador.

El Salvador dollarized starting at the end of 2000, under the conservative government of President Francisco Flores, from the far-right, staunchly pro-US ARENA party.

Flores was notorious for his extreme corruption, and when he died in 2016, he was under house arrest for stealing millions of dollars that were donated by Taiwan, in what was effectively a bribe to maintain diplomatic recognition. (El Salvador formally recognized the People’s Republic of China in 2018, under leftist President Salvador Sánchez Cerén of the socialist FMLN party.)

Ecuador’s right-wing government surrendered its monetary sovereignty and adopted the dollar in 1999, in response to a banking crisis that devalued the national currency.

The economic minister who oversaw that dollarization was Ecuador’s current right-wing president, Guillermo Lasso.

Steve Hanke, the ultra-neoliberal Austrian School economist who is calling for Argentina to dollarize and publicly supporting far-right politician Javier Milei, took credit for Ecuador’s lack of monetary sovereignty, boasting on Twitter: “The only thing stable & reliable in Ecuador is its money: the USD. With an assist from yours truly, Ecuador dollarized in 2000”.

In May 2023, Lasso dissolved Ecuador’s unicameral parliament – the National Assembly, in which the opposition had a majority – and essentially declared himself a dictator.

He is now ruling by decree, and ramming through extreme neoliberal policies.

Lasso plans to impose laws that will cut wages, make new employees work for five months without benefits, and even force workers to pay back their employers a month of their salary if they are unilaterally fired (while making it significantly easier for companies to fire their employees).

The US government has strongly supported Lasso as he has dissolved parliament and declared a de facto dictatorship.

3 Comments

3 Comments

  1. Eric Arthur Blair

    2023-05-26 at 15:40

    The solution to having your fingers burnt, is to dive into a vat of boiling oil. Great idea!

  2. Rigoberto Lopez

    2023-05-27 at 11:01

    “We are familiar with the Master-Slave dialectic:

    The two roles ineluctably get switched.

    Whoever has colonized should not be surprised to find himself colonized in turn.

    Whoever destroys the identity of another does not strengthen his own but makes it more vulnerable, more threatened still, in a world which has lost a little more of its diversity.”

    “The money power preys on the nation in times of peace, and conspires against it in times of adversity.

    It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes.”

    —- Abraham Lincoln

    It is important to note that before the dictatorship of sub fascist Ecuador under the Muerte Cruzada, the military was advised of Lasso’s decision to dissolve the Ecuadorian parliament and take dictatorial powers BEFORE the Court even had ruled on Lasso’s decision.

    Remember: the first thing Latin American oligarchs do is buy a media company or two, a bank or two, and set up shell companies all over the world.

    The coin operated politicians are used to represent legitimacy and pass capital favorable laws.

    The military is used to protect the ‘State’ which in this case is the dollarized bank and the US imperialist wants and needs.

    Under further decree by Lasso, now groups who the government refuses to identify, can be charged with terrorism. An obvious US tactic.

    Lasso says that this decree is aimed at drug cartels but we know from experiences in Colombia that the decree will be used against the highly organized CONAIE indigenous movement who has suffered tremendously both under Lassos economic policies and in the streets in protest.

    This decree could be used to label any Correa members or indigenous ‘terrorists’ with a 25 year prison sentence.

    This makes organized protest far more dangerous.

    Ecuador will have a difficult time in trying to emerge from this neo-colonial US rule and oligarchic dictatorship.

    The US is determined not to lose Peru and Ecuador.

  3. Rubicon

    2023-09-18 at 19:03

    Thank you, Ben for informing us of this Argentinian tragedy. To make it all the worst, you have Larry Fink & Paul Singer making huge profits from Argentina’s Debt.

    Aside from those vultures, as Tucker Carlson announcing he would interview Javier Milei, our European friend defined him as Fascist Neo-Con.
    We’ll not soon forget Tucker & Milei with their gleeful laughs. Before the interview was aired, we permanently de-twitterized Carlson forever.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related stories

USA

Russia's President Vladimir Putin condemned the "boogeyman" anti-China propaganda that Trump ally Tucker Carlson spewed in his interview in Moscow, while mocking the ex...

USA

CIA Director William J. Burns published an article demonizing China as the "bigge[st] long-term threat", boasting that the spy agency has doubled its budget...

Economy

China's state-led economic development model and robust industrial policy has transformed it into what an influential European think tank calls "the world's sole manufacturing...

Economy

These were the most important geopolitical and economic issues of 2023, including the wars in Gaza and Ukraine, US-China tensions, BRICS expansion, growing de-dollarization,...