Commentary

Letters to the Editor: Questions the IMF is Obliged to Answer

Sir, On January 10, the FT published two items in which the authors advocated dollarisation for Argentina: “Duhalde’s wrong turn”, by Jeffrey Sachs, and “Argentina could learn from the example of El Salvador” (Letters) by Manuel Hinds. These were followed by an editorial, “Argentina’s bind” (January 14), which concluded: “Given Argentina’s terrible record of monetary management, policy credibility may be easier to achieve through the (dollarisation) route.”

When asked about dollarisation for Argentina during a press briefing on January 11, Anne Krueger, first deputy managing director of the International Monetary Fund, threw cold water on the idea, however. Indeed, Dr Krueger said: “Well, my understanding at the moment is that (dollarisation) is technically unfeasible. So I don’t think the authorities are thinking about it; I don’t think we are thinking about it.”

Dr Krueger’s statement implies that the Banco Central de la Republica Argentina (BCRA) does not have enough foreign reserves to liquidate its peso monetary liabilities and dollarise the economy. According to the BCRA’s balance sheet of January 10, this was not the case, however. The BCRA’s peso monetary liabilities were 17.92bn pesos and “pure” foreign reserves in US dollars were Dollars 14.75bn. In addition, the BCRA had 14.96bn pesos of domestic assets valued at market prices that could be sold to acquire US dollars. Consequently, at the time Dr Krueger made her statement, it would have been feasible for Argentina to dollarise at an exchange rate of 1 peso to 1 US dollar, the rate in force under the Convertibility Law.

This, of course, leads to a number of questions: Is Dr. Krueger misinformed? Or does the IMF know something that the rest of us don’t know? In short, does the BCRA have an “Enron problem”?

In accord with the IMF’s executive board decision to enhance transparency (January 4, 2001), the IMF has an obligation to answer these questions and explain why dollarisation is not feasible at a one-to-one peso-dollar rate. Furthermore, if the BCRA does have an “Enron problem”, at what exchange rate would dollarisation be feasible? After all, dollarisation is always feasible at some rate.

This article originally appeared in the Financial Times on January 17, 2002.


Letters to the Editor: Dollarisation in Argentina Cannot Be Counted on to Succeed

by Thomas C. Dawson

February 1, 2002

Thomas C. Dawson is the director of external relations at the International Monetary Fund in Washington, DC.

From Mr Thomas C. Dawson.

Sir, Prof Steve Hanke (Letters, January 17) asks if Argentina’s central bank has “an Enron problem”. Only if it hires Prof Hanke as its accountant.

He asserts an improbable market value for some items on the bank’s balance sheet to argue that Argentina could still dollarise its economy at one-to-one. The domestic assets of the central bank mainly consist of credits to weak banks and to a government shut-out of financial markets. Converting these assets into dollars cannot be assured. Nor is this a silver bullet: so long as Argentina’s other economic problems are unresolved, dollarisation cannot be counted on to succeed where the currency board did not.

This article originally appeared in the Financial Times on February 1, 2002.


Letters to the Editor: Questions Remain Unanswered

February 6, 2002

by Steve H. Hanke

Steve H. Hanke is a professor of applied economics at Johns Hopkins University, a senior fellow at the Cato Institute in Washington and chairman of the Friedberg Mercantile Group in New York.

From Prof Steve H. Hanke.

Sir, The response of Mr Thomas Dawson of the International Monetary Fund (Letters, February 1) to my letter of January 17 fails to answer the specific questions I raised. The IMF public relations expert’s response only demonstrates his ability to hurl a personal insult and run for cover.

My original letter contained data from the Banco Central de la Republica Argentina’s balance sheet of January 10. These indicated that the BCRA’s peso monetary liabilities were 17.92bn pesos and that “pure” foreign reserves in US dollars were Dollars 14.75bn. In addition, the BCRA reported other domestic assets that could be used to obtain US dollars.

As just one example, “overdrafts and rediscounts to banks” amounted to 3.93bn pesos. According to the BCRA’s charter (Article 17), these were fully collateralised (section g) and, contrary to Mr Dawson’s claim, that collateral consisted of “publicly traded securities, which shall be assessed according to their market value” (section h). Consequently, on January 10 the BCRA had more than enough assets to liquidate its peso liabilities and dollarise Argentina at an exchange rate of 1 peso to 1 US dollar.

Unless the BCRA had cooked the books and failed to comply with its charter, the January 11 assertion of Anne Krueger, the IMF’s first deputy managing director, about the technical unfeasibility of dollarisation was, therefore, incorrect.

Steve H. Hanke is a professor of applied economics at Johns Hopkins University, a senior fellow at the Cato Institute in Washington and chairman of the Friedberg Mercantile Group in New York.