Mark Rosen, a former U.S. representative on the IMF executive board, has expressed support for Argentina using the dollar to tame high inflation even though the idea faced criticism from prominent figures.
In a recent interview, Rosen stressed that dollarization would benefit Argentina, underscoring the significance of financing the fight against inflation as a crucial concern.
"It would basically eliminate most of the risk of future inflation, which is a huge issue. It wouldn't necessarily deal with the spending issue, but it would anchor monetary policy, and be a big positive change," said Rosen.
Rosen was appointed during former U.S. president Donald Trump's administration, serving in an interim role starting in 2019. He highlighted the record-breaking $57 billion loan extended to Argentina's previous government, with $44 billion used.
However, the loan program failed to avert an economic crisis, leading to President Mauricio Macri's defeat in the 2019 election. It was abandoned to favor the current agreement, which deviated significantly from its intended course.
Currently a partner at the New York-based investment firm Advection Growth Capital, Rosen boasts four decades of experience in investment banking, with one of his focuses being Latin America, including Argentina. The country is known for its erratic policies and current inflation rate exceeding 124 percent.
Argentina's dollarization plan
Argentine presidential candidate Javier Milei has pledged to implement dollarization for Argentina's economy — the second largest in South America — if he wins the upcoming election.
The proposal faced criticism from domestic and international economists due to its lack of essential details, including the source of the required dollars, the exchange rate for the transition and a clear timeline for the change.
Previously, Argentina's efforts to reduce its dependency on the U.S. dollar for trade and debt obligations were hindered by the sharp depreciation of its currency, the peso.
Over the past decade through June, the U.S. dollar surged by 4,800 percent against the Argentine peso. By the end of 2022, the country's external debt reached 45 percent of its GDP, as indicated by CEIC data. Consumer prices soared by 114 percent in May compared to the previous year.
The exchange rate and inflation issues sparked a call for Argentina to ditch the peso and formally adopt the U.S. dollar as legal tender. Esteemed economist Steve Hanke asserted that "dollarization" was the sole viable solution for Argentina to escape its debt crisis.
Francisco Zalles, an economist who played a role in Ecuador's dollarization in 2000, said earlier this month that Argentina did not require an initial influx of dollars to adopt the dollar as its currency. He anticipated that dollars would naturally return to the country once the transition occurred.
The IMF has yet to officially articulate a stance on Milei's dollarization proposal. However, Alejandro Werner, a former IMF official involved in Argentina's program, criticized Milei's dollarization plan, deeming it "impossible."
Argentina's $44 billion IMF agreement — the largest in the history of the Washington-based institution — depends on the economic policies of the upcoming government.
Under President Alberto Fernandez, the current administration failed to meet targets due to budgetary overspending, leading to requests for program revisions. The next government is under pressure to devise a convincing plan to secure the IMF's support.
Despite the dollarization plan, Argentina recently paid its debt to the IMF without using dollars. Instead, the country used Chinese yuan and special drawing rights notes. Argentina also started offering bank accounts denominated in yuan and discussed creating a joint currency with Brazil called the "sur."