CHICAGO – In the context of the IATA World Financial Symposium taking place this week in Chicago, USA, one of the presentations focused on the possible dollarization of Argentina.
This became more significant after last Sunday’s presidential elections, in which the ruling party candidate Sergio Massa emerged as the most voted, followed by Javier Milei, a proponent of dollarization. Both will compete in the runoff on November 19th.
The presentation was led by Mike Moran, Latin America Macro Strategist at Santander US Capital Markets. He began by noting that, in general terms, the region had a remarkable year, with good news such as governments being quick to respond to their inflationary cycles, and bad in still not being able to address the imbalances caused by the pandemic in terms of increased informality and poverty, among other unresolved issues.
Regarding dollarization in Argentina, Moran described it as «a very difficult transition to make», recalling that the country had previously undergone a similar process, the convertibility, which, although initially successful in curbing inflation, could not be sustained because it required «an extraordinary amount of fiscal discipline.»
On this latter point, he added that in Argentina «there has been no success in maintaining fiscal discipline in the long term,» which, without the ability to issue its own currency, ends up resulting in the accumulation of dollar-denominated debt.
Dollarization and airlines
Industry experts attending the event in Chicago spoke with Aviacionline about the impact that dollarization could have on local airlines in Argentina. They expressed that, initially, it might seem beneficial in terms of accessing external financing, and it would also simplify payment processes for products and services in dollars abroad, which are currently much more complex due to foreign exchange restrictions.
The downside would be the loss of competitiveness as a tourism destination if Argentina becomes more expensive (although this could be offset by increased outbound tourism). However, they insisted that they see it as very challenging to implement, at least in the short term, if there isn’t a change in mindset about fiscal discipline.
In recent months, the case of Flybondi gained prominence as they faced claims from lessors of some of their aircraft because they couldn’t make payments due to government barriers (one was even immobilized), while they also had to delay the introduction of new planes for the same reason.
