By David R. Francis writer of The Christian Science Monitor
The Christian Science Monitor
In the midst of another financial crisis, Argentines have been voluntarily "dollarizing" their country.
Already 70 to 80 percent of loans are denominated in the United States currency. Dollars comprise about 60 to 70 percent of cash and bank deposits.
That's good news for US taxpayers. Because of seigniorage - the profit the US government makes when it issues new coins, currency, and credit - Americans' tax burden is lightened by hundreds of millions of dollars.
But to the 37 million Argentines, the dollar-peso choice is a troubling sign that they don't trust their own currency and banking system.
Last month, the Washington-based International Monetary Fund again rode to the rescue, promising $8 billion in emergency aid to shore up Argentina's banks. Perhaps $5 billion will be turned over this month. Without the loan, the banks might run out of liquidity, risking a deposit freeze that would damage an economy already in recession for three years. The Bush administration was deeply involved in negotiating the deal. It was regarded as a victory of pragmatism over ideology, caution over boldness.
During the presidential election, however, Republicans had sharply criticized the Clinton administration for similar repeated "bailouts" of indebted nations. They charged that such rescue packages created a "moral hazard," by encouraging nations to follow risky and unwise economic policies.
But Steven Hanke, an economist at Johns Hopkins University in Baltimore, Md., says the Bush bailout policy is "virtually identical" with Clinton's.
The main difference is that Bush Treasury officials became "overtly involved in the micro-management" of the Argentine negotiations in Washington, Mr. Hanke says. They were "a lot more clumsy."
Politics aside, will the latest bailout work? After all, it comes only nine months after Argentina received a $39.7 billion support package from the IMF.
Hanke says the latest IMF money will buy Argentina some time: "The problem will be deferred." It will provide Argentina enough funds to cover any shortage in servicing of its $128 billion in foreign debts this year and in 2002. These debts have grown rapidly in recent years with huge budget deficits.
Earlier this month, deposits in Argentina's banks rose slightly. Apparently the IMF loan prompted some Argentines to keep their money at home. …