Argentine presidential candidate Patricia Bullrich proposes making both the dollar and peso official currencies. This plan contrasts with the full dollarization plan advocated by her rival, economist and politician Javier Milei.
At the Bloomberg Economic Summit in Buenos Aires, Carlos Melconian, Bullrich's chief economic advisor, said the peso and the dollar would "coexist."
"There will be a complementary exchange rate regime that will be step by step, and will take inflation into account," Melconian said.
He also explained that Bullrich intends to reduce government expenditures by four percent of the gross domestic product, addressing another significant contributor to the peso's depreciation.
"There is going to be very severe and prudent macroeconomic policy in Argentina," the adviser said.
Although the peso would continue circulating during Bullrich's term, she has previously voiced her support for abolishing currency capital controls. Despite the initial intent to mitigate the peso's depreciation, these controls have given rise to a convoluted system of dollar exchange rates.
Melconian took the stage before Emilio Ocampo, an economic adviser to Milei, who is pushing for the closure of the central bank and the adoption of the dollar as the national currency.
Milei, who secured roughly 30 percent of the vote in the recent primary, is now the frontrunner for the October 22 election. Meanwhile, Bullrich's pro-business coalition lagged behind Milei, receiving around 28 percent of the vote.
Argentina's economic crisis is marked by a 124 percent inflation rate and 118 percent interest rates. While Milei advocates for official dollarization, the private sector has already informally adopted the dollar for transactions like corporate salaries and Airbnb rentals.
Analysts, however, have raised concerns that eliminating the peso could lead to an unexpected recession. They cite Argentina's current lack of sufficient U.S. dollar reserves as a contributing factor.
Dollarization advocacy
An insider familiar with Milei's economic plan revealed that his fiscal restraint would involve trimming expenditures. This would include the reduction of subsidies for essential utilities like gas, electricity and water, as well as scaling down federal government transfers to economically disadvantaged provinces.
Despite Wall Street's positive response to Argentina's efforts to achieve fiscal balance, there is considerable doubt surrounding Milei's ability, given his age, to deliver rapid and significant outcomes.
Prior austerity measures, such as the one in 2019, exacerbated the recession by cutting subsidies, leading to rising inflation, diminished consumer purchasing power and increased unemployment levels.
According to Francisco Zalles, the economist who played a pivotal role in Ecuador's dollarization in 2000, Argentina should not let its current lack of U.S. dollar reserves deter it from abandoning the peso. Zalles told Bloomberg that once Argentina makes the switch, the inflow of dollars into the country will naturally follow.
"For Milei's plan to work, he needs nothing," Zalles said. "He just needs to dollarize."
Several countries, including Ecuador, have already adopted the U.S. dollar as their official currency. Some of them do so in response to economic crises. Should Argentina choose to do so, it would become the largest economy to undergo dollarization.
Bloomberg's report highlights that 60 percent of Argentinians are opposed to the idea of embracing the U.S. dollar as their national currency. Economists believe this opposition stems from concerns about granting excessive monetary authority to the U.S. Federal Reserve under Milei's plan.