Argentina's Potential Shift to the Dollar: Will it Garner Votes?

When voters head to the polls on Sunday to select Argentina's next president, they will not only be choosing between two candidates but also deciding on the type of country they want to live in. This is particularly evident in Buenos Aires, where Sergio Massa, the country's current finance minister and a prominent political figure, is facing off against Javier Milei, a former television commentator who joined politics less than three years ago.

The runoff between Massa, representing the Union for the Homeland coalition, and Milei of Freedom Advances, concludes a divisive political campaign marked by unexpected twists. Milei's surprise victory in a preliminary vote in August was followed by a weaker performance in the October elections. However, he has regained momentum and is currently leading in the polls. In this soccer-obsessed nation, voters are now grappling with the crucial question: which of these two political polar opposites, both former goalkeepers in their youth, can effectively navigate an economy grappling with rampant inflation?

Over 35 million Argentinians will vote on Sunday to decide whether they have faith in Massa to navigate the country out of its severe economic crisis, using policies that have previously proven ineffective. Alternatively, they can choose to take a risk by supporting Milei, who advocates for adopting the US dollar as the national currency. It is important to note that Argentine law restricts the release of opinion polls within eight days of the election. However, recent data suggests that the two candidates are running at a similar level, and experts anticipate a closely contested election.

On a personal level, the two candidates possess stark contrasts: Massa, a devoted family man, has nurtured aspirations of becoming a politician since his early adolescence and has dedicated his career to various elected positions. Conversely, Milei resides solitarily with a contingent of five identical English mastiff clones, derived from a previous pet, and achieved congressional status in 2021.

Massa has astutely forged political alliances to facilitate his rise to government power, while Milei has garnered attention through audacious political ploys, such as brandishing a chainsaw at public gatherings, and promising to dismantle the bureaucratic class embodied by his opponent.

The Brave New World of Javier Milei

Milei has garnered the majority of the spotlight this year, not just due to his distinctive political approach - in addition to brandishing chainsaws, he has a tendency for fiery outbursts and has willingly embraced the moniker of The Crazy One as his popularity soars - but also because his proposed reforms would profoundly steer Argentina towards the right.

Outside of his controversial plan for dollarization, his political agenda encompasses reducing regulations on gun control and shifting control of the penitentiary system from civilians to the military. These measures reflect a tough-on-crime approach.

Presidential candidate Javier Milei of the Liberty Advances coalition wields a chainsaw during a rally in La Plata, Argentina, on Tuesday, September 12, 2023, as depicted in this file photo by Natacha Pisarenko/AP. As part of his campaign efforts, Milei has vocally criticized Argentina's political class, various leftist Latin American presidents including Mexico's Andres Lopez Obrador, journalists, and Pope Francis. Notably, Milei holds a leading position in the polls for the upcoming elections in the South American nation.

The chainsaw contender who is shaking up Argentina's political landscape, Milei, suggests utilizing public funds to assist families who opt for private education for their children. Having had personal experience attending a Catholic private school in Buenos Aires, he also advocates for the privatization of Argentina's healthcare sector, which has historically been under public control.

Recently, Milei caused controversy due to his apparent support for establishing a market for organ transplants. However, he later withdrew his statements. Similarly, he was compelled to apologize for referring to Pope Francis, a well-regarded figure in progressive politics, as "an envoy of Satan" in 2017. Despite the apology, he did not hesitate to accuse Francis of aligning himself with "bloodthirsty dictators" during an interview with right-wing commentator Tucker Carlson in September.

In college, Milei pursued a degree in economics and had a deep admiration for Milton Friedman, so much so that he named one of his beloved dogs after the renowned free-market theorist.

However, his most provocative suggestion revolves around public finances, as he intends to slash government expenditures significantly and famously abolish the central bank, fully embracing dollarization for the entire country.

Can Argentina dollarize?

The concept of dollarization is not new. In the last 30 years, two other Latin American nations, Ecuador and El Salvador, embraced dollarization as a measure to address inflation. However, dollarization has yet to be tested in a country as large as Argentina.

Milei's proposition is straightforward: Argentina's consistently high inflation rate is a result of politicians and central bankers resorting to printing new pesos in order to fund their social programs and political pledges. Consequently, the peso depreciates and the overall population becomes poorer. To tackle this issue, Argentina should relinquish the peso and adopt the dollar as its currency, as its value is determined by the US Federal Reserve and cannot be arbitrarily printed.

However, one drawback of dollarization is that it strips a country of its ability to manipulate the economy through monetary policies, leading critics to label it as a restrictive measure.

Due to the high inflation rate in Argentina, which has seen prices rise by 142% since 2023, foreign institutions have shown interest in the proposal. However, prominent conservative publication The Economist has recently cautioned against dollarization, emphasizing Argentina's insufficient dollar reserves and highlighting that the drawbacks would far outweigh the advantages.

Conversely, proponents of the move, including analysts from the Cato Institute, a US-based rightwing economics think tank, view it as the sole feasible approach to address a persistent issue that spans decades.

During a campaign rally in La Plata, Buenos Aires, Argentina on September 12, 2023, Javier Milei, a presidential candidate for the La Libertad Avanza coalition, proudly displayed a placard featuring his face incorporated into a dollar bill. The photo was taken by Agustin Marcarian/Reuters.

Javier Milei advocates for Argentina to adopt the US dollar as its currency. Here's the potential impact of this move.

Inflation surged after the decision to float the currency, marking a strong comeback.

Massa has denounced the dollarization plan, arguing that it would compromise national sovereignty. He has also tried to demonstrate that the current actions of the government are already yielding positive outcomes.

In October, inflation was 35% lower than September, although it still remained high at 142% compared to the previous year.

Despite their reservations about dollarization, former President Mauricio Macri and another former election candidate, Patricia Bullrich, have both endorsed Milei, along with other mainstream politicians.

The world is watching

Interest in this Sundays elections goes far beyond Argentinas borders.

Left-wing politicians in the region, such as Luiz Inácio Lula da Silva from Brazil, Gustavo Petro from Colombia, and José Luis Rodriguez Zapatero from Spain, have abandoned their tradition of non-intervention in other countries' elections and have shown their support for Massa.

On the other hand, Milei can rely on the backing of former Brazilian President Jair Bolsonaro, Peruvian-Spanish writer Mario Vargas Llosa, and the conservative former Prime Minister of Spain, Mariano Rajoy.

The outcome of

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holds significant implications as it could potentially serve as a catalyst for far-right populist leaders such as Bolsonaro and former US President Donald Trump in the lead-up to the 2024 US presidential election. Conversely, a victory by Massa would serve as a demonstration of center-left policies.

The polls are expected to close at 6 p.m. local time (4 p.m. ET) and the vote count is anticipated to proceed swiftly, unless any unexpected issues or objections arise.

Milei seemed to cast doubt on the results of the initial round of voting in October, although his party did not file a formal appeal.