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I've had a sort of secondary theory about the Argentinian economy for a while that he seems to agree with, that Argentinians are so traumatized by past crises that they'll bank run at the slightest sign things are weakening, making their currency way more fragile to any shock than a normal county's would be. Macri did implement reforms after all, he cut quotas, tariffs, currency controls, FDI restrictions, price controls, and subsidies, and things did get better for a while, then everyone freaked out the moment the US raised interest rates and things deteriorated again.
He implemented some reforms, but the overall situation was still awful in 2016-2017: https://en.wikipedia.org/wiki/Economy_of_Argentina#Data
Also, the inflation target was raised by 5%: https://en.wikipedia.org/wiki/28D
I think you slightly underplay the signs of modest recovery before the Crisis of 2018 - GDP per capita and growth improved in 2017, the default ended, access to international capital markets was restored, and poverty rates started to fall again to their lowest levels since the 90s. This was enough of a clear improvement that it helped Cambiemos sweep the 2017 elections.
But I don't disagree, that's really the exact point I'm making - Marci actually did implement pretty wide ranging reforms and was barely able to dent their overall endemic instability. His administration's weak point was obviously siding with the Treasury over the Central Bank on inflation, but Frente de Todos is hitting it with 97% interest rates currently and it's still not making a difference.
It is of course true that inflation is larger and more complex than interest rates alone, but Argentina also raised reserve requirements, implemented currency controls, and are taking steps to reduce the money stock. They're doing this badly (ie via sterilization because they're too iliquid for normal open market operations) but my point isn't that they're doing a good job addressing the crisis, just that the Central Bank is implementing the policy their predecessors were criticized for not using.
As an aside, doesn't Friedman's own argument about the 70s only makes sense if you expect inflation to respond immediately to raising rates, which he didn't? The outcome is consistent if you expect there to be lags.
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Those are nominal rates, not real rates, though they could still be tight with 100% inflation if the Argentine economy is weak or disinflationary real interest rates are low for some other reason.
I'm not saying FdT is doing a good job, I'm saying they're implementing the policy that Macri would have if he hadn't capitulated on inflation targeting.
Possibly. I don't Argentina's economy too well, but it's a case where dollarization might be tough but necessary medicine.
It would probably fix inflation and i guess they’re all already using dollars, but I think even Milei said to dollarize he expected they’d have to liquidate 100% of central bank reserves, and other people seem to think even that wouldn’t be enough. I have to assume that would be pretty devastating (ie pensions disappearing overnight), and I’m not sure why they wouldn’t run into the same issues they did under convertibility. Then again maybe in the long run that’s better than where they’re at, idk.
They wouldn't. A lot of Argentina's problems are paying for a lack of credibility. For example, interest on government bonds includes not only default risk, but also the risk of high inflation. That would be reduced to a tiny fraction (just the risk of inflation by the US government) if they dollarized.
But yes, it would be a very costly undertaking in the short run.
What about competitiveness? My understanding is the main reason they abandoned convertibility was it way overvalued their currency for the region, hurting exports (at least after an initial burst) and employment, especially after everyone else’s currencies torpedoed in the crises of the 90s.
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