Argentina raises Interest Rate to 60%

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What does this mean in the grand scheme of things?

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Comments (41)

Aug 30, 2018

Time for Lord Singer to raid that place again

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Aug 30, 2018

lol. hes prob not up for the challenge this time around.

Aug 30, 2018

He certainly has the naval fleet for it this time.

Aug 30, 2018

Time to book flights to Buenos Aires for the next vacation!

    • 3
Aug 30, 2018
Erlking:

Time to book flights to Buenos Aires for the next vacation!

Flight to South America are less expensive then you think. I literally just booked a flight to Chile $1,100 round trip and hotels down there are cheap AF. I am staying at the Ritz for $300 per night.

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Aug 31, 2018

Is this a joke? As in, sarcasm I'm not following?

    • 2
Sep 1, 2018

That is really not that much-- and not really a super-exclusive life that he/she is living... quite ordinary, more or less, in the grand scheme of things

Funniest
Sep 1, 2018
Link_REDev:
Erlking:

Time to book flights to Buenos Aires for the next vacation!

Flight to South America are less expensive then you think. I literally just booked a flight to Chile $1,100 round trip and hotels down there are cheap AF. I am staying at the Ritz for $300 per night.

Oh boy! What a deal!

    • 7
Sep 4, 2018

lol, I realize the post came off pretentious, but 1) the ritz is a bargain compared to the US and 2) $1,100 for a flight to the southern tip of the world is not expensive. There is no u-haul behind a hearse

Sep 4, 2018
Link_REDev:

lol, I realize the post came off pretentious, but 1) the ritz is a bargain compared to the US and 2) $1,100 for a flight to the southern tip of the world is not expensive. There is no u-haul behind a hearse

I can book a room at the very nice RC in Tysons Corner, VA, USA for <$300 right now...

Sep 11, 2018
real_Skankhunt42:
Link_REDev:

lol, I realize the post came off pretentious, but 1) the ritz is a bargain compared to the US and 2) $1,100 for a flight to the southern tip of the world is not expensive. There is no u-haul behind a hearse

Yeah but who TF wants to be in Tysons Corner
I can book a room at the very nice RC in Tysons Corner, VA, USA for <$300 right now...

Sep 6, 2018

$1100 is weak af as far as good deals go. I'm seeing $600-$700 RT. And you can get a fucking palacial Air BNB for $75/night down there.

heister:

Look at all these wannabe richies hating on an expensive salad.

Sep 6, 2018

I booked the Ritz Carlton South Beach at ~$240 per night last year.

Aug 30, 2018

hmm maybe i'll have to return!

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    • 1
Sep 6, 2018

I had family in Argentina on vacation while all of this went down. Apparently hotels make you pay in USD atm.

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Aug 31, 2018

Nothing surprising. An IMF guy successfully scammed his way into power again.

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Most Helpful
Sep 1, 2018

Argentina has a financial crisis every few years. I wrote my undergraduate and one of my graduate theses on currency crises in Argentina. The place is run like the rest of Central and South America--that is, as a kleptocracy. Before the First World War, Argentina was the 7th or 8th largest economy in the world. It's still a beautiful country, but it can't seem to get out of its own way. It benefited in the late 19th and early 20th centuries by waves of German. Italian, Irish and Spanish immigrants. And it still has some gorgeous architecture from the period, but you can't really get an economy going with the level of political turmoil they've seen for the past century. There have been several coups and more presidents and want-to-be dictators than anyone would care to remember.

The IMF and World Bank started issuing the country loans in the 1980s and 1990s. It was seen as something of an experiment. Surely, it had enough natural resources, population and development to really be a beacon for the rest of South America. But the country couldn't afford the loans. Initially it could, but a nasty combination of corruption and incompetence pushed its fiscal position out of balance. So what did the country do? It borrowed more, of course. And to provide investors some additional confidence, it created the 'Ley de Convertabilidad' (Convertability Law) that pegged the Argentine Peso 1-to-1 against the US Dollar. The problem with doing so was that it required El Banco Central de la Republica Argentina (BCRA, the Argentine central bank) to keep an American dollar in reserve for every peso in circulation. This wasn't such a problem so long as the country had a positive trade balance with the US (since it would naturally accumulate dollars), but became problematic when the country started running large trade deficits, at which point, to maintain the peg, the central bank had to start buying dollars on the open market or shoring up the convertability law through more loans. So it kept taking out more fucking loans. The currency should have revalued in 1998, but weak politicians and stubborn bankers from the IMF and World Bank kept trying to correct the country's debt problems with the exact same solution--more of the same thing that got the country into the position in the first place.

It's baffling to me where some people learn economics, because the consequences of these shitty policies were pretty obvious from at least 1995, the currency should have been allowed to revalue in 1998, the country should have pushed back some of its debt, and worked through an austerity program. Instead, the situation just kept getting worse through 2001 until the Peso collapsed and went from 1-to-1 against the US Dollar to 4-to-1 in a single day. There were runs on the banks, and 3-4 presidents in as many months. One of them (I think Menem or de la Rua) froze all private accounts in the country. You could only take out a couple hundred pesos (not dollars) from your accounts per month, but no one wanted pesos, so various regions of the country started creating fractional currencies not backed by the central bank. It was a complete disaster. When the Argentine supreme court said that it was not within the president's powers to freeze all private accounts, the President tried to fire the entire supreme court.

The country was never exactly a paragon of virtue and jurisprudence, but it devolved into a banana republic virtually overnight. It has been 17 years since that happened, and the country is in trouble again. They could fall off a cliff tomorrow, or as I suspect, they'll slowly make one blunder after another until they edge toward default. The IMF will probably make the same mistake they did last time and continue to grant them enough rope to hang themselves. And the Argentinians will take every inch they can get. Because of the last fiasco, I imagine there will be some lip service paid to the notion of remaking the same mistakes, but there is too much on the line with too little leverage to push a Greek-style austerity program on the country.

While I haven't been following the country's economic situation as closely as I once did, I imagine the request to the IMF wasn't made publicly until most other avenues had been explored, which means they went public to force the IMF's hand to show them what would happen in the markets if they didn't get the money. Now, the IMF is going to get pressured to do something to prevent a larger catastrophe. They will capitulate, and the situation will get worse for a little while before the country finally gets it shit together or shits the bed again. I'm betting on the latter.

    • 60
Sep 1, 2018

This right here is why I get on WSO. Well done, sir.

    • 3
Sep 1, 2018

Nice job

    • 1
Sep 1, 2018

I would read the shit out of your grad paper

    • 3
Sep 1, 2018

I wouldn't mind sharing it, but I no longer have a digital copy. It's also primarily focused on the game-theoretic models which describe currency crises, so it's not very readable (even for PhD economists and mathematicians, it would take some time to read unless they're already familiar with a few of the seminal papers in the field). It's one of the reasons I never finished my PhD--I got tired of writing dense material for an audience of a few dozen people. As it is, more people liked my earlier post than ever read any of my research.

    • 4
Sep 2, 2018
brotherbear:

Argentina has a financial crisis every few years. I wrote my undergraduate and one of my graduate theses on currency crises in Argentina. The place is run like the rest of Central and South America--that is, as a kleptocracy. Before the First World War, Argentina was the 7th or 8th largest economy in the world. It's still a beautiful country, but it can't seem to get out of its own way. It benefited in the late 19th and early 20th centuries by waves of German. Italian, Irish and Spanish immigrants. And it still has some gorgeous architecture from the period, but you can't really get an economy going with the level of political turmoil they've seen for the past century. There have been several coups and more presidents and want-to-be dictators than anyone would care to remember.

The IMF and World Bank started issuing the country loans in the 1980s and 1990s. It was seen as something of an experiment. Surely, it had enough natural resources, population and development to really be a beacon for the rest of South America. But the country couldn't afford the loans. Initially it could, but a nasty combination of corruption and incompetence pushed its fiscal position out of balance. So what did the country do? It borrowed more, of course. And to provide investors some additional confidence, it created the 'Ley de Convertabilidad' (Convertability Law) that pegged the Argentine Peso 1-to-1 against the US Dollar. The problem with doing so was that it required El Banco Central de la Republica Argentina (BCRA, the Argentine central bank) to keep an American dollar in reserve for every peso in circulation. This wasn't such a problem so long as the country had a positive trade balance with the US (since it would naturally accumulate dollars), but became problematic when the country started running large trade deficits, at which point, to maintain the peg, the central bank had to start buying dollars on the open market or shoring up the convertability law through more loans. So it kept taking out more fucking loans. The currency should have revalued in 1998, but weak politicians and stubborn bankers from the IMF and World Bank kept trying to correct the country's debt problems with the exact same solution--more of the same thing that got the country into the position in the first place.

It's baffling to me where some people learn economics, because the consequences of these shitty policies were pretty obvious from at least 1995, the currency should have been allowed to revalue in 1998, the country should have pushed back some of its debt, and worked through an austerity program. Instead, the situation just kept getting worse through 2001 until the Peso collapsed and went from 1-to-1 against the US Dollar to 4-to-1 in a single day. There were runs on the banks, and 3-4 presidents in as many months. One of them (I think Menem or de la Rua) froze all private accounts in the country. You could only take out a couple hundred pesos (not dollars) from your accounts per month, but no one wanted pesos, so various regions of the country started creating fractional currencies not backed by the central bank. It was a complete disaster. When the Argentine supreme court said that it was not within the president's powers to freeze all private accounts, the President tried to fire the entire supreme court.

The country was never exactly a paragon of virtue and jurisprudence, but it devolved into a banana republic virtually overnight. It has been 17 years since that happened, and the country is in trouble again. They could fall off a cliff tomorrow, or as I suspect, they'll slowly make one blunder after another until they edge toward default. The IMF will probably make the same mistake they did last time and continue to grant them enough rope to hang themselves. And the Argentinians will take every inch they can get. Because of the last fiasco, I imagine there will be some lip service paid to the notion of remaking the same mistakes, but there is too much on the line with too little leverage to push a Greek-style austerity program on the country.

While I haven't been following the country's economic situation as closely as I once did, I imagine the request to the IMF wasn't made publicly until most other avenues had been explored, which means they went public to force the IMF's hand to show them what would happen in the markets if they didn't get the money. Now, the IMF is going to get pressured to do something to prevent a larger catastrophe. They will capitulate, and the situation will get worse for a little while before the country finally gets it shit together or shits the bed again. I'm betting on the latter.

Great post. However I don't think a Greek style austerity will do anything positive. Mainly because Greece itself is going to have to maintain fiscal surpluses until 2034, then a ligher version until 2044, then another lighter version until 2054. Does anyone believe that there won't be global recessions until then? The big hope of the ECB, the European Commission and the IMF is that cheap liquidity will boost growth until then allowing Greece to repay its debts and stay in the Euro. The cheap liquidity is being hoarded in German banks anyway.

There's one point I particularly agree with you though and that's the insane fixed exchange rate, which is a crazy fetish of international institutions and it's destroying one country after another. Argentina is indeed the case and so is Greece.

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Sep 3, 2018

It's probably true that a long-term austerity program won't work in Argentina (or Greece for that matter). Even if there were no recessions during the austerity period, it's difficult to explain to future generations why they have to pay for the sins of their forefathers, so you lose the political will to maintain such programs over time. In the Greek case, there is a natural mechanism to break austerity--time. Too many young, educated Greeks have left their country. Repatriation becomes rarer as the years pass, and the economy suffers from the loss of some of the country's most employable young people. This depresses the long-run growth expectations for the country and makes repaying loans harder for the government as it collapses the tax base.

I think Greece should have probably exited the Euro, pushed back a lot of its debt, restructured the portions it couldn't push back, floated the drachma, and allowed its economy to heal more naturally. As much as anyone, Germany pushed austerity on the Greeks because it was in their interest to do so. No country has benefited more from the creation of the Euro than Germany. Averaging in a bunch of peripheral economies to the European Monetary Union has the ongoing effect of depressing the value of the Euro against major trading pairs (the USD, the GBP, the JPY). German goods are comparatively cheaper than they would otherwise be as a result, which supports its manufacturing sector and makes it costlier to purchase services from abroad (in turn, propping up its own business services sector).

In the short run, Greece would probably have felt more pain than it has. I suppose the austerity program's core purpose is to smooth the total economic hardship over many years so the country doesn't face a giant depression all at once. But that worst-case scenario is just that--a single scenario. It's difficult to prognosticate how likely such events are, but because there is such enormous disutility for the economy as a whole in several of the more dire cases, no one is willing to take the risk.

I have an enormous risk tolerance, so I might have rolled the dice. As it happens, my opinions on the matter are pretty irrelevant. Certainly, no one consulted me on the issue in any case. But I'd like to have seen the outcome in the alternative case. The doomsayers will claim it would have been apocalyptic, but there's no way to know for certain. At some point, I'm sure the Greeks will renegotiate for loan forgiveness. They'll have to wait another 5 or 6 years, though. After the next downturn (maybe in 2 years) and then a few years after that so we're on an upswing again. By that point, it won't be as politically disastrous for German and French technocrats to take a slight haircut on their Greek portfolio. Right now, the bailout is still to recent for Greece to get a better deal.

In Argentina's case, I have a harder time seeing a solution. The risks of attempting to force austerity on Argentina are great. In that situation, I might expect another military coup. People generally aren't willing to fall back to a lesser stage of development. Once they've tasted the trappings of wealth, that quickly becomes their new norm. And any politician seen as responsible for negotiating away the country's future to creditors wouldn't last long in any country, much less a South American one prone to dictatorships. As a result, I'm sure there are some who would double down on the country, and provide more loans. But that solution is unworkable.

The country needs equity, not debt. There is an argument that international institutions (perhaps intentionally, perhaps not) place emerging economies into debt traps. In some ways, this is a perverse form of colonialism without any corresponding development responsibilities. Senior creditors (in my opinion) generally care less about the workings of a company than equity investors since they're pretty sure they're getting paid back. Shareholders should be less certain of that, and should therefore take a greater interest in the firm's inner workings. I think the same is true in emerging economies. They need a 1950s era Marshall Plan, not more debt. But we don't have the surpluses or political willpower to do so.

As a result, Argentina will take more debt, the IMF will reluctantly give it to them. The debt will only provide a short-term band-aid to the country's problems, before creating more problems in a couple years. They'll keep making shitty fiscal decisions, never cure their problems, and the IMF will eventually reach a breaking point, stop providing loans, and the country to devolve into chaos before a totalitarian assumes power again. OR, we could try something different this time.

Who the fuck knows?

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Sep 3, 2018

Another great analysis. I do not think Greece will ever be able to renegotiate its debt forgiveness though. They have no political leverage, nor collective will to do so and the opposition to it will be relentless. The idea of the ''lazy and corrupt Greek'' in Germany has stuck. The Greek political class is completely worthless, you have the original sinners (ND/PASOK), the traitors (Tsipras) and the crazies (KKE/GD), no other alternatives.

It'll take a collapse of Germany, not Greece for those debts to be forgiven.
Argentina? Ultimately they got austerity in another form because their standard of living dropped significantly. They also seem to be stuck with mediocrity like Greece. For all their faults at least the Kirchners had removed the IMF yoke from the country. Now Argentinians somehow managed to vote in another guy with the same ideas that got them into this mess to begin with, less than two decades after the disaster. Never learn? At this point the cycle is perpetual and Argentina will be stuck with the IMF debt slavery programs for the rest of the century. Unless the international world order collapses and that isn't even unlikely at this point.

Sep 3, 2018

I'm not sure about this. I think desperation can be its own form of leverage. If the austerity program and debt repayment schedule in Greece depress their economy too much, the downside scenarios might push the Greeks into an untenable social situation. Social unrest can generate political leverage when that unrest threatens the country's ability to repay. The Greeks may be somewhat complacent now, but in the next downturn, they'll likely underperform developed countries since their economy already rests on the edge of a knife. And it will likely take longer for them to recover from another financial shock for the same reason.

That's why I said they'd probably have to wait 5-6 years for a slightly (not markedly) better deal. They need another recession in developed economies to push them into a situation where Germans have some understanding of their plight. If Germany goes through it's own downturn, the polity will get used to hearing about economic woes. And after Germany pulls out of it sooner than Greece, their relative good-fortune might make Germans more sympathetic to restructuring the debt. If I were a Greek politician, that's what I'd shoot for.

I'm not even sure it's outside of German interest to make some concessions in the scenario I described. Loan forgiveness is like equity, and as I said in an earlier post, a lot of these countries need equity, not debt. Debt, when used like the Greeks or Argentinians, depresses growth and weakens your balance sheet to the point that you have no optionality left for your politicians or central bankers. If I were running one of those economies (in some fantasy world where a single person runs any economy), I'm not sure what I'd do because the rhetoric required to reach the heights of political power needed to come close to having the ability to sway an entire economy is inimical to the middling scenario an economist or financier might implement once in power were there no political considerations.

In many crises, bad politics beget shitty economics which in-turn beget unsustainable finances. If the cycle persists overlong or an exogenous shock rocks the cradle too soon, a crisis ensues. So long as it only happens in peripheral economies, no one really cares, which is also why they rarely change. Argentina was once and is now again a disaster (or on the cusp of it). Turkey is in a fiscal position not terribly dissimilar to Indonesia before the Asian financial crisis. The US never put enough effort into Central America in the 1990s, and the whole region is a bit of a dumpster fire these days. Venezuela's economy has completely collapsed and everything Maduro's government attempts just makes the situation worse. And Greece isn't likely to fully recover in my lifetime. But none of it really matters so long as the market can focus its attention on something else.

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Sep 3, 2018

What can drive Greeks over the edge? Their salaries and pensions have been cut, there are new taxes all over the place, 10% of Greeks left, their islands have been turned into camps for immigrants that noone in Europe wants, their banks were frozen. Despite all of this, the overwhelming majority of the population is pro-EU and pro-Euro today and think it's the way forward and I'm talking about 60-70% of the voters. Looking at politicians, the furthest they got is Varoufakis and his parallel currency but even him doesn't dare to question the EU project and is waiting for Godot of ''another Europe''. I don't see Germany changing their opinion on the matter any time in the next decade, at least. It'll take another annihilation to humble them down again.

This is radically different for instance from Italy where a lighter austerity combined with the refugee crisis burned out the entirey of EU credibility in the country making it the most Euroskeptic in Europe since the UK is leaving. Italy has crowd agitators (Di Maio) and strategists (Salvini) who can bring the country of the the Euro if the situation requires it. The latest attempt to force yet another IMF drone in the government last June by the President of the Republic was shut down by the parliament with a grand total of 0 votes of confidence and the talk for impeachment of the President for high treason. I don't see any of that in Greece. They seem to have given up their will to fight after the referendum in 2015.

Argentina has less constaints but the damage has already been done and nothing short of debt erasure will help their case, under that aspect I agree with your argument, but in the meanwhile their currency has been destroyed. Hard to figure a way forward.

    • 1
Sep 4, 2018

Well, it looks like Argentina is already on to emergency measures after that stunt with the IMF. The thing is, because Argentina has had so many problems in the past (from which they've never recovered), they're like an addict relapsing. People aren't generally willing to keep helping you when you fuck up the second time. And this is closer to Argentina's 11th time, so investors are rightfully antsy.

There is good, game-theoretic academic work to support that idea that the state of the economy in a particular country doesn't have to actually be at the point where dumping your holdings becomes rational for you to perceive the underlying state of the economy to be close enough to it for you to make that choice. Since all observers only receive fuzzy signals about the state of the economy, it's not irrational for some people to start selling their holdings far earlier than politicians and financiers might like. In the case of Argentina, the signal received by most observers is noisier than in most economies precisely because the country has had so many historical problems.

Perversely, those early sellers can push an economy past the tipping point creating the crisis they feared in the first place. The process happens rather quickly because it becomes increasingly rational for an ever-larger portion of the population to make the same choice the early sellers made as the perception of the economy deteriorates. The markets, at their core, are gauges of societal confidence. And in the case of a lot of emerging economies, that confidence is a carefully stacked house of cards. Unfortunately, it seems Argentina lacks a steady hand.

    • 3
Sep 4, 2018

Any books or sources you recommend to get smart on this stuff?

Sep 6, 2018
brotherbear:

I think Greece should have probably exited the Euro, pushed back a lot of its debt, restructured the portions it couldn't push back, floated the drachma, and allowed its economy to heal more naturally. As much as anyone, Germany pushed austerity on the Greeks because it was in their interest to do so. **No country has benefited more from the creation of the Euro than Germany. Averaging in a bunch of peripheral economies to the European Monetary Union has the ongoing effect of depressing the value of the Euro against major trading pairs (the USD, the GBP, the JPY). German goods are comparatively cheaper than they would otherwise be as a result, which supports its manufacturing sector and makes it costlier to purchase services from abroad (in turn, propping up its own business services sector). **

Shouldn't the same hold true also for Italy then? It's a big economy (8th in the world by GDP) reliant on exports (7th largest exports economy in the world) which should therefore profit from a lower value Eur both due to their goods being cheaper and from imports being costlier for peripheral EU economies . I mean in the end what current Italian politicians want (leave the eur to be able to devalue their own currency and make their exports comparatively cheaper) is exactly what the Euro should already be providing.

What am I missing?

Sep 4, 2018

+1 , cheers.

Sep 4, 2018

while I lived there I always told ppl that the history of their economy would make for a very interesting grad thesis, thanks for posting!

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Sep 4, 2018

I normally find the idea rather stupid for a country to "dollarize"--instead, it should clean up its fiscal behavior. With that said, isn't Argentina a good candidate for dollarization given the perpetual incompetence of its financial managers? Same thing for Venezuela.

Sep 4, 2018

Dollarization requires you to have enough dollars in your economy to replace your own currency. It means you outsource your monetary policy to a foreign power, and it means you constantly have to acquire dollars. If you read my explanation of Argentina's last currency crisis in 2001, they had effectively attempted to dollarize their economy years earlier, but the crisis ensued regardless. You may say that they hadn't fully dollarized their economy because the Convertability Law (see above) just pegged the Peso to the Dollar, but the effect of that peg was essentially the same as full dollarization (especially since the law required a USD to be held in reserve for every single Peso in circulation). That policy was a disaster, and returning to it makes little sense.

    • 1
Sep 5, 2018
brotherbear:

Dollarization requires you to have enough dollars in your economy to replace your own currency.

But doesn't dollarization happen naturally in many countries? The Venezuelan public, for example, has already dollarized. The world is just waiting for Venezuela's gov't to dollarize at this point.

brotherbear:

It means you outsource your monetary policy to a foreign power,

Right, this is why having good fiscal policy is better than dollarizing. But if a nation refuses sound fiscal policy decade after decade, this is exactly what may be needed--the outsourcing of monetary policy.

brotherbear:

and it means you constantly have to acquire dollars.

Technically, yes, but not really. If your economy is based on the dollar then so is taxation. You don't need to acquire dollars inorganically--the gov't simply acquires dollars through the normal course of taxation.

brotherbear:

If you read my explanation of Argentina's last currency crisis in 2001, they had effectively attempted to dollarize their economy years earlier, but the crisis ensued regardless. You may say that they hadn't fully dollarized their economy because the Convertability Law (see above) just pegged the Peso to the Dollar, but the effect of that peg was essentially the same as full dollarization (especially since the law required a USD to be held in reserve for every single Peso in circulation). That policy was a disaster, and returning to it makes little sense.

Pegging your currency to the dollar isn't the same thing as dollarization. Pegging your currency to the dollar is an entirely arbitrary decree from the gov't that does, to your point, require the purchase of dollars to back that peg; dollarization is using the dollar--with market value set by planet Earth--as legal tender. Again, if an economy organically dollarizes then a dollarized gov't can organically raise revenue through the normal course of business. It doesn't need to purchase dollars to back an arbitrary decree.

Sep 5, 2018

If you're interested in reading the full argument the IMF published (in an academic paper) at the time of the last currency crisis in Argentina (2001), here it is:

https://www.imf.org/external/pubs/ft/wp/2000/wp005...
It's literally a paper by the IMF weighing the pros and cons of dollarizing Argentina before the last crisis.

The issue with the paper is that it's old(ish). One of the points they make is that it's difficult to know empirically what happens when a country dollarizes because (at the time) there was only one example of a country adopting the currency of another (Panama). That's not the case today.

There are A LOT of criticisms of this paper. The authors, for instance, suggest that one of the primary benefits of dollarization is, "...closer economic and financial integration with the United States and the global economy, which would contribute to accelerate the convergence to the income levels of the advanced economies." Notwithstanding the shitty writing, the authors don't attempt to justify that assertion. It has the added benefit of not being true in hindsight.

That said, they do a reasonably comprehensive job of walking through the pros and cons of dollarization. Essentially, for countries that are already substantially dollarized in any case (places where you can already transact in dollars) the costs to the government of dollarization (most readily measured as the loss of seigniorage revenues) are relatively small, and the benefits seem potentially attractive. But there are several costs which are difficult to quantify (like the costs of exiting dollarization if you ever needed/wanted to). It's a trigger you get to pull once. Perversely, that's also considered something of a boon to the concept of dollarization. The fact that it's largely irreversible should inspire confidence in international investors, compress spreads and reduce the cost of borrowing. Moreover, dollarization protects and economy from future currency crises and the radical outflows of capital that come with them.

Older literature suggests that the best candidates for dollarization are countries with strong financial and trade relations with the US that are already substantially dollarized. But the Latin American economies don't fit this description. Still, Argentina has tried and failed at virtually everything else (a currency board, a peg, IMF loans, etc.), so maybe they should go for it. I'd certainly be interested in seeing the results of that economic experiment.

    • 4
Sep 5, 2018

Thank you @brotherbear for your insights. Indeed Panama and Ecuador can be seen interesting "experiments" in dire economic moments, especially the latter. It is impressive (and sad) to watch countries so vastly rich in resources (and arguably people/human capital) in such lamentable situation (economically, politically and worse still, social). Interesting to compare with the economic/Social woes of Brasil from past decades and their multiple economic experiments (in terms of currency, fiscal/monetary policy and otherwise). Beyond corruption, cronyism and other follies, countries Latin America will only find a sustainable path out of these spirals if they cleverly tackle inequality (creating opportunities across the social fabric, not in the communist sense). I, likewise, am extremely curious to see this unfolding (and hopefully see this extraordinary country) recover from it.

    • 1
Sep 4, 2018

One word summary: socialism. Happens every time.

Sep 5, 2018

Fantastic shit here.

Sep 4, 2018

What concert costs 45 cents? 50 Cent feat. Nickelback.

    • 1