In the middle of the week Pablo Zurrothe Cristinista mayor of Pehuajó, assigned a fireship to javier milei. “What happens is that he is a compulsive masturbator -said. That’s why he says bullshit.” Zurro’s phrase supposes the existence of a whole conceptual scheme about human sexuality. From it it can be deduced, in principle, that there is a frequency from which someone who masturbates stops choosing it freely to do it in an addictive way. In addition, it seems that if that happens it produces changes in the personality: it stuns, confuses, drives people to say nonsense. Finally, Zurro -for some reason that is going to know what it is- suggests that he knows Milei’s privacy.
Outside of these speculations, it is actually about a gross, foolish and inappropriate aggression which describes Zurro more than Milei. But she is not the only one who received the rising star of Argentine politics these days. It is about a man who lives with seven dogs and is in love with his sister, warned a journalist who lent her voice to one of the videos released by the vice president. “Who’s afraid of you, brother?“, the very same challenged him Cristina Kirchner.
It is the repetition of a dynamic that has accompanied the libertarian economist from the moment of its appearance. He grows in the polls, they insult him, he grows more, they insult him more, he grows again. What is supposed to happen if they keep insulting him? It is a method that Christianity has already put to the test against personalities as different as Francisco De Narváez, Sergio Massa and, above all, against Mauricio Macri. In all cases he achieved similar results.
Meanwhile, in the midst of all this confusion, there are some more serious efforts that explain some more delicate issues than living with pets. Milei’s most serious problem is that their proposals could generate a social tragedy of a dimension that not even Argentines with several decades of life have seen yet. This disturbing perspective is summed up in a single word: dollarization.
The first thing to consider to understand the problem is whether Milei’s central idea is feasible or not. It is not a minor issue. Dollarization is a tool that tries to attack the country’s main problemwhich is the inflation, and all that derive from it. If the new president is enshrined in an idea that cannot be carried out, that means that he comes up with no solution to that problem and, logically, it will get worse: this has happened, for example, with the last three presidents, neither of whom faced the matter seriously.
Dollarization, in principle, should be enforced by law. That is going to be very difficult. In an impressive election, Milei could get 30 percent of the vote, maybe 35, miraculously 40. Using a very linear calculation, at best for him, would only have 20 percent of the Chamber of Deputies, which is renewed by halves, or with just 13.3 of the Senate, which is renewed by thirds. If the candidate’s only idea is to dollarize, and You don’t have the votes to do it.there would be no dollarization and therefore would be left without a plan against inflation.
But there is a problem of another order: it is not clear that dollarization can be imposed by law either. One of the people, perhaps the most important, who will eventually have to decide on this point is the president of the Supreme Court, Horace Rosatti. In its Constitutional Law TreatyRosatti wrote a chapter entitled “Unconstitutionality of the adoption of a foreign currency as national currency.”
It says verbatim:
“Could the national State adopt as its own currency, that is, as national currency, a foreign currency? Constitutionally, this possibility is prohibited for different reasons.
1. Because it would be a currency that could not be issued by the national State, making the power of article 65 paragraph 6 void of content.
2. Because it would be a currency whose value could not be set by the national State, making the power of article 75 paragraph 11 impracticable.
3 Because it would be a currency whose value could not be defended by the State, among other reasons because it would not exercise the issuance right over it, making the mandate of article 75, paragraph 19 abstract. What has been said does not mean that, in setting the value of the national currency can be used as a referential parameter the value of another currency”.
So, to adopt the dollar as Argentina’s currency, Milei would have to get the usual majority of legislators required for a common law, or the special majorities to call for a constitutional reform, and then call constituent elections where his force should get more than half of the votes of the society. For that, time is required and, during that time, prices would continue to coexist, as up to now, with a government without a plan.
A solution that cannot be applied, in principle, hardly a solution.
But, what would happen if it was applied, if -let’s say- Milei obtained eighty percent of the votes in October and, in this way, in the style of the Salvadoran Nayir Bukele, achieved something like the sum of public power?
In the last few hours, a consultant distributed among some of the most important businessmen in the country a text that was very easy to understand. It contains some numbers, but not many. The work explains that the “dollarization exchange rate” arises from dividing all the pesos that circulate by all the dollars that the State can use to capture those pesos. The text maintains that, if the government dollarizes, everyone who has pesos must exchange it for dollars, but whoever has pesos deposited on demand or at a fixed term, or who has government bonds, will also require dollars. In order for this demand to be satisfied, the government must provide dollars for an equivalent amount. Therefore, those dollars must have a value that allows them to aspire the pesosor meet that demand.
At the time of making calculations, the report explains that the pesos in circulation are 27 million million pesos, that is, 27,000,000,000,000 pesos. And the dollars held by the State are 4 billion. By dividing one by the other, the dollarizing exchange rate arises: 6,750 pesos for dollars. Other reports calculate that this result, depending on different variables, would oscillate between 3,400 and 13,500 pesos per dollar. The variation is explained by the incidence of variables that can be modified in the midst of the electoral dynamics.
In other words, under these conditions, dollarization with few dollars would produce one of the strongest devaluations in human history. The dollar would multiply, in the best of cases, by fifteen and in the worst by almost fifty. Inflation would destroy wages in a matter of seconds. What would happen to Milei in that case? Hundreds of countries have been successful with the application of much less traumatic stabilization plans. It is difficult to understand why someone would appeal to a leap into the void of this type.
The cited work admits that an alternative scenario is speculated in the vicinity of Milei. Libertarians argue that the economic plan would generate such levels of confidence that Argentine bonds would multiply their value. If that happens, the Central Bank could sell the bonds in its possession, thus obtaining 67.5 billion dollars and with that it would be able to dollarize at a much lower dollar value and similar to this week’s blue, as Milei assured.
This approach faces three problems:
1- Maybe Milei’s economic plan do not generate the confidence they imagine. It would not be the first time it happens. In fact, there aren’t too many investors expressing hope about it. If, in this case, confident of a favorable response from the markets that does not arrive, a new government sets a dollar exchange rate that is too low to respond to demand, this will generate -says the report- an unstoppable run: many people will want dollars that do not exist.
2- If, on the other hand, it provokes such confidence in the markets, the Central Bank could sell the bonds to get dollars and with that maintain a dollarizing exchange rate of 450 pesos. But, by delivering bonds, it would increase the State’s debt in dollars. In this case, for 67,500 million dollars.
3- But, in addition, devaluing from 240 to 450 -if they could put that ceiling- would also produce a brutal liquefaction of real wages.
In other words, the plan is difficult to implement legally. But also, carries dramatic risks of a mega-devaluation or, in case of miscalculating, a bullfight that would take places to the banks. If everything goes as the libertarians plan, the debt in dollars would increase in a shocking way and, in addition, the real salary would suffer a new cut.
This week, Alejandro Devoto added another risk: that the State, instead of exchanging pesos for dollars, ends up exchanging them for Petacones. Devoto explained that an eventual dollarization would generate such rigid conditions for access to dollars that the same governors, using the powers of a federal regime, would immediately issue quasi-currencies with which, for example, they would pay salaries. How would those currencies trade against the dollar? How much could be bought with them?
It is certainly about a dystopian scenario, but which has an even more complex element. If Milei achieves a primary result that puts him in a favorite position to run for president, a desperate demand for dollars may be triggered. In that case, various consultancies predict that a crisis scenario, much worse than the current one, would explode in August.
As can be seen, there are more delicate situations to discuss than the alleged private conduct of this or that candidate. Argentina is facing one of the most distressing and uncertain transitions in its democratic history. If the alternative candidates do not do their best to build credible and powerful options, we may be close to experiencing unforgettable moments, in the worst sense of the term.
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