Can Argentina dollarise?

This is an audio transcript of the FT News Briefing podcast episode: ‘Can Argentina dollarise?’

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Marc Filippino
Good morning from the Financial Times. Today is Friday, October 20th. And this is your FT News Briefing. Western countries are telling their citizens to leave Lebanon as the war between Israel and Hamas escalates. And that conflict is becoming politically tricky for the UK’s Labour party. Plus, we’ll take a look at why a radical outsider is the frontrunner in Argentina’s presidential election. I’m Marc Filippino, and here’s the news you need to start your day.

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The US, Britain and Germany are all warning their citizens to get out of Lebanon. There’s a growing concern that the conflict between Israel and Hamas will turn into a wider regional issue. Shelling between northern Israel and southern Lebanon intensified on Thursday. Hizbollah fired at least 20 rockets over the border into Israel. Separately, Israel’s defence minister suggested that a ground invasion into Gaza could be imminent.

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UK prime minister Rishi Sunak was in Israel yesterday.

Rishi Sunak voice clip
We will stand with you in solidarity. We will stand with your people, and we also want you to win.

Marc Filippino
Sunak’s visit comes as political tensions in the UK are starting to boil over about the Israeli response to the Hamas attacks. Here to discuss is the FT’s Whitehall editor, Lucy Fisher. Hi, Lucy. 

Lucy Fisher
Hi, Marc. 

Marc Filippino
So tell me about Sunak’s visit to Israel. What was he hoping to accomplish? 

Lucy Fisher
The UK has a historical involvement in the Middle East and of course there have been British nationals caught up in the horrific attack and hostage saga in Gaza. So those were his motivations for going out. Largely what we’ve heard from him saying since the October 7th attack, expressing solidarity with Israel, urging restraint from Israel in the most diplomatic language, and also making clear his hope that Israel will allow aid to enter Gaza urgently. 

Marc Filippino
Yeah, that restraint thing is something that we heard from US president Joe Biden earlier this week. He said, you know, don’t make the same mistakes that we made, we being the US, out of anger after 9/11. So what’s going on back at home in the UK? How are politicians positioning themselves in this conflict? 

Lucy Fisher
Well, interestingly, the leadership of the Conservatives and Labour, I mean, there’s hardly a cigarette paper between them. They are four-square behind Israel and its right to self-defence. I think it’s worth stressing that Keir Starmer in particular, however, has come under pressure from influential Muslim members of his party and from sections of the left over his very much pro-Israel stance. I think, in particular, remarks he made on a British radio station last week suggesting that Israel have the right to withhold water and other crucial supplies from Gaza have prompted a really big backlash. And we’re beginning to see a mutiny grow in Labour’s ranks. 

Marc Filippino
And we should remind listeners that there is this history with the Labour party and support for Israel. What was that like even before Starmer when Jeremy Corbyn was in charge? 

Lucy Fisher
Well, look, I think you’re right to highlight Jeremy Corbyn, who was Labour leader before Keir Starmer, and many of his fellow travellers were very closely aligned with the Palestinian cause. And of course, under Corbyn’s era, there was a wider problem with antisemitism in the Labour party. It was found to have broken equalities law in its failure to stamp out hate in its ranks. So that was one of Keir Starmer’s first and biggest priorities when he took over the Labour leadership in 2020 to kick out anti-Semites and to come down like a ton of bricks on antisemitism, a feat he has largely achieved with a great deal of success. 

Marc Filippino
What do the parties need to consider as this crisis unfolds and we get closer to a general election? 

Lucy Fisher
Right now, the Conservative party seems four-square behind Rishi Sunak, but I do see this becoming a bigger problem for Keir Starmer. In recent days we’ve seen councillors quit. We’ve seen officers in local parties quit in protest at the Labour leadership’s stance on this conflict. There is the sense of a growing mutiny and sense that anger in quarters of the Labour party is only gonna get worse as the situation in Gaza gets worse. So I think in coming weeks and months this is gonna be a bigger problem for Labour. 

Marc Filippino
Lucy Fisher is the FT’s Whitehall editor. Thanks so much, Lucy. 

Lucy Fisher
Thanks, Marc. 

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Marc Filippino
Argentines head to the polls this Sunday in what is likely to be a closely contested election. And the consequences could be huge. The winner will inherit a wrecked economy, a deeply divided nation and an anxious population. The current frontrunner is an unconventional economist that’s taking the country by storm. His name is Javier Milei. (Chanting sounds) Here to talk about it is Michael Stott, the FT’s Latin America editor. He just got back from Argentina. Hey, Michael. 

Michael Stott
Hello, Marc. 

Marc Filippino
So who exactly is Milei? 

Michael Stott
So Milei is an eccentric character. He’s a 52-year-old economist who worked for quite a long time for one of the country’s bigger conglomerates. But he developed a career more recently as a TV personality, appearing on shows to give his solutions for Argentina’s ailing economy. He’s somebody promising to tear everything up and start again his way. And his way involves shrinking the state dramatically, cutting spending, cutting taxes, opening up free trade. And to understand more about the Milei phenomenon and who his supporters are, I went to a rally in the outer suburbs of Buenos Aires.

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There’s adulation, people shouting and screaming and going crazy over him.

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I talked to some of his supporters at the rally, and I suggested to them perhaps that Milei was crazy. They said he was! 

Unnamed interviewee
We need someone crazy to change our country. 

Michael Stott
The two I spoke to were young, I would say, relatively well-off backgrounds, and they endorsed Milei’s sort of extreme libertarian views. 

Unnamed interviewee
Our country’s a completely mess. You know, we need a good change. And Javier Milei’s the only one that has these policies, you know. 

Michael Stott
But a lot of his other supporters, they just like the idea of a crazy guy who wants to shake everything up. 

Marc Filippino
Wow. So it sounds like he has a lot of fans. But what are Milei’s actual plans for Argentina? You know, what policy proposals does he have? 

Michael Stott
So his key policy is dollarisation. He wants to dollarise the Argentine economy — in other words, adopt the US currency. As Argentina’s currency is shut down, the central bank, he says, they’ll never print another peso as long as he’s in power. And he wants to make this all permanent by effectively getting rid of the peso. 

Marc Filippino
Michael, dollarisation would be huge for Argentina’s economy. What would it look like? 

Michael Stott
So effectively, part of Argentina’s economy is already dollarised, and Milei’s idea is you dollarise the whole thing. And this is gonna get rid of distortions and make it all above board. If you’re a private individual, you can exchange your dollars on the black market. And this is what a lot of Argentines, a lot of tourists, do.

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So I arranged to meet a black market dealer in dollars, spoke to him in a café, and he exchanged some money while we were there and told us a little bit about how the market works. And he was saying this was probably a market that was doing about $20mn a day in cash in central Buenos Aires. 

Marc Filippino
So it seems like US dollars are already a big part of the economy. But what are the risks if all of Argentina were to use the dollar? 

Michael Stott
The difficulty with it is that no other country of Argentina’s size has ever tried to dollarise because when you dollarise, you lose control over monetary policy, which is a big lever for the economy and you tie yourself to the Americans’ interest rate cycle. Argentina is a big commodity exporter. It has a very different economic structure to the US. But the problem is if it dollarises, it becomes tied to whatever decisions the Fed makes about whether to raise or lower interest rates, which may or may not suit the Argentine economy. That’s one big problem. And the second big problem with it is that you put your economy in a straitjacket. You can’t then get out of dollarisation again. You can’t suddenly devalue if you become uncompetitive. And we think there of the experience Greece had with the euro. And the third problem with dollarisation is that although Milei claims this would stop Argentina overspending, it’s not actually true. Dollarisation on its own doesn’t stop you running a deficit. It just makes it more complicated to finance the deficit. 

Marc Filippino
OK, Michael. Getting back to Sunday’s election, Milei is obviously not the only candidate. He’s the frontrunner. But a lot of people think this election will actually end up in a run-off. So who else could give him, you know, pun intended, a run for his money? 

Michael Stott
So his two main opponents are, on the centre-right, Juntos por el Cambio, that’s the coalition that Mauricio Macri, the previous president, came to power at the head of. Their candidate’s Patricia Bullrich, who is a former security minister. And then on the left, the centre-left, we have the ruling Peronists. They’ve put up Sergio Massa, who is the economy minister at the moment. But he’s in a way more than that. He’s a super minister who’s really running the government. The current president, Alberto Fernández, is very unpopular and he has disappeared from view almost completely. So that’s a rather bizarre situation. And I think it’s quite hard to predict how this could play out. 

Marc Filippino
Michael Stott as the FT’s Latin America editor. Thanks, Michael. 

Michael Stott
Thanks, Marc. 

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Marc Filippino
Before we go, one last reminder here. We’re offering 50 per cent off a digital subscription to FT.com. Just go to FT.com/briefingsale. Of course, we will have that link in the show notes.

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This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. We had help this week from Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music. 

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