This time is not different
Argentina periodically puts on stage the same drama. The actors, the costumes, the scenery—and perhaps a few minor details—may change, but the plot and the ending never do.
“Those who cannot remember the past are condemned to repeat it,” said the American philosopher George Santayana. This curse is a constant in Argentina, where we seem to be living in a local remake of Groundhog Day. The historical perspective of political leaders and economy ministers barely extends beyond the most recent crisis. All the previous ones—and there are so many—fade into oblivion. Present-minded voluntarism and disdain for history prevent experience from becoming a teacher.
This serious problem worsens when some economists permanently residing in the penthouse of the ivory tower insist with “solutions” drawn from textbooks and abstract models disconnected from Argentina’s economic and political reality. The same nonsense is repeated ad nauseam: “If Chile, Peru, and Uruguay could do it, why can’t we?” As if our predicament were a matter of chance.
They confuse coincidence with causality. We are where we are because for decades we have been living under a corporatist institutional-economic regime captured by interest groups that benefit from it at the expense of ordinary citizens and who, by having recruited the political system as their protector, have ensured its survival. We were trapped by populism in farce that repeats itself as a tragedy.
Escaping from this trap that condemns us to economic decline requires far more than wishful thinking and grandiloquent speeches in international forums. One cannot change a regime like the one bequeathed to us by decades of populism in twenty months of government without eradicating at least two fundamental pillars on which it rests: the ability to issue pesos to finance excess spending and the devaluation of peso to save inefficient businessmen. With these two weapons, the system prevents its implosion during crises—but condemns us to stagflation.
Throughout 2023 I argued, in several articles (for example, here, here, and here) and interviews, that given Argentina’s very short electoral calendar—eighteen months at most—the first thing the incoming government had to do was implement a credible monetary reform, which is the “mother” of all reforms. As long as uncertainty persists about the value of the peso, no other structural reform (deregulation, liberalization, privatization, etc.) can fully bear its fruits—and for obvious reasons. Given Argentina’s history, the only way to eliminate monetary uncertainty was through an official, or de jure, dollarization (we’ve de facto dollarization for decades). This option was viable politically, legally, and financially.
Then as now, I believed that without such a reform it would be difficult to reach this stage of the electoral cycle with enough political capital to win the midterm elections comfortably. And without a victory, the government would be left weakened ahead of the 2027 presidential race, and all the reforms carried out would be easily and swiftly reversed by the next Peronist administration.
Of course, it was impossible to foresee which scandal or unforced errors would weaken the government at this stage of the campaign, but mistakes are inevitable (especially when amateurism prevails). It was also clear that Peronism would resort to every trick and maneuver in the book to achieve that goal.
The government had all of 2024 to dollarize, but failed to do so for lack of conviction. Doubts about dollarization’s feasibility were reinforced, in part, by the opinion of a New York hedge fund manager who, during a brief visit to Buenos Aires, convinced the president that it was not only impossible but also undesirable (such recommendation aligned perfectly with his own interests: nothing suits a trader better than Argentina’s permanent volatility and its recurring defaults followed by lucrative restructurings). Whatever the reason behind the president’s decision to abandon his main campaign promise, the idea that dollarization was impossible without “a mountain of dollars” became firmly embedded within the government—even though it lacks any theoretical or empirical basis. The econolobbists of local banks, among the fiercest opponents of dollarization, contributed to promote this notion in the media.
Milei’s economic team was confident that with the “three anchors” program they would keep the Argentine economy afloat and moving. From their perspective, dollarization was no more than a midsummer night’s dream.
They chose a crawling peg and a policy of intervention in the foreign exchange and financial markets not much different from Massa’s. For anyone remotely familiar with Argentina’s economic history over the past half-century, its results were entirely predictable. To their credit, they managed to skillfully transition out of this unsustainable FX regime, without provoking a crisis or their own resignations. That was the moment to dollarize. The ideal opportunity came in April, when Milei appeared politically invincible and Scott Bessent visited Argentina to explicitly express the Trump administration’s support for his policies.
Historical note: In January 1991 there was a strong run on the peso and the specter of hyperinflation reappeared. Menem reshuffled his cabinet, replacing Erman González with Domingo Cavallo, who on March 31, 1991, announced the Convertibility Plan. In the October elections, the Peronist Party won 44% of the vote. An alliance with the UCeDé and several provincial parties gave the government a majority in Congress. Thus began the most important structural reform program in modern Argentine history.
If the government achieves even a modestly favorable result in October, Milei will still have room to dollarize and save his presidency—a powerful reason to vote for him. He has on his side the support of the White House, which views the dollar as a powerful weapon in the cold war with China and has an interest in expanding its use globally. And if Milei lacks such support, he should be actively working to secure it and to convince both the IMF and the markets that only through dollarization will Argentina be able to ever repay its external debt and prevent a future populist government from once again leading the country down the road of inflation, default and stagnation. If the government insists on the recipes that have never worked, or allows itself to be seduced by the fantasy of a floating exchange rate, it will achieve the same results as in the past—and Argentines will continue to dance to the Caribbean rhythm: one step forward, two steps back.