Argentina’s Monetary Rebellion

It’s time for President Milei to pick up the pace of reform as regional Perónists lay plans to issue their own scrip.

Tomas Cuesta/Getty Images
Argentina's president, Javier Milei, then a candidate, holds a replica of a hundred dollar bill on September 25, 2023 at Buenos Aires. Tomas Cuesta/Getty Images

As Javier Milei’s reform agenda is forging ahead in Argentina’s legislature, a currency war is emerging in a left-leaning northern province to defy his austerity program. It underscores the need for Mr. Milei to move quickly on his monetary vow, starting with stabilizing Argentina’s debased peso. The best way to achieve this is to move toward a gold-backed currency, but his campaign pledge to tie the peso to the dollar would mark a step in the right direction.

The issuance of the “bocade” signals that the Perónist-dominated La Rioja province is “defying Milei’s austerity push to end the nation’s chronic fiscal deficit,” Bloomberg reports. The use of what is billed as a “quasi-currency” to pay government staff “evokes similar provincial currencies issued during past economic crises that ended infamously,” Bloomberg adds. That includes the scrip put out by local communities during America’s Great Depression. 

These local currencies, described in Amity Shlaes’ “The Forgotten Man,” included scrip like the “vallar.” They arose during a shortage of cash in the early years of the Depression and marked a kind of regression toward a barter system. Local scrip like the vallar could be used to trade for goods, but “could not keep mortgage holders from losing their homes,” Ms. Shlaes wrote. The economic crisis of the day needed to be solved with a sound dollar, not with scrip.

While the Depression-era scrip may have been benign in intent, the bocade looks designed to undermine Mr. Milei’s landslide mandate to get inflation and spending under control and revive Argentina’s economy. “We’re forced to do this due to the speed, savagery and cruelty” of Mr. Milei’s first steps in office, La Rioja’s governor, Ricardo Quintela, described by the Buenos Aires Times as “a veteran Peronist,” explained after the scrip was authorized.

Mr. Quintela added that his province — in which some two-thirds of the labor force are government employees and three-fourths of the budget is furnished by tax dollars redistributed by the national government, the Financial Times reports — was so flummoxed by Mr. Milei’s reform drive that he called the legislature in for “special sessions” in order to “create financial instruments, either virtual or physical, to be able to help.” 

In the long run, Mr. Milei’s growth agenda is the best way to save a country that is reeling under 211 percent inflation and a poverty rate of 40 percent. Yet his reforms will not come without some short-term pain — a tradeoff the voters cannot have misunderstood when they propelled him to office with a landslide of 56 percent. The Sun has already noted the dilemma facing Mr. Milei over whether to prioritize growth or a stable currency in his early days.

A similar debate arose in America with Dwight Eisenhower’s presidency, we observed, resulting in a missed opportunity to restore the gold standard because of fears that the economic conditions weren’t ripe. So far, Mr. Milei “has put plans to replace the peso with the dollar on hold to prioritize budget austerity,” Bloomberg reports. Yet the news out of La Rioja suggests this strategy could play into the hands of the left-wing Perónists.

That’s because the Perónist scrip is a back-door attempt to fuel the very inflation Mr. Milei was elected to tamp down. “Austerity” has forced La Rioja “to freeze public workers’ salaries,” Mr. Quintela laments. The supplementary scrip is being issued in part with the expectation that Mr. Milei’s government will later honor it by converting the bocades into pesos. That’s what happened with the “patacones” issued by another province in an earlier financial crisis.

Mr. Milei appears to be taking the emergence of the bocade in stride, welcoming it “sarcastically,” as Bloomberg puts it. “Provincial currencies are welcome to compete,” Mr. Milei says. Yet he warns that “unlike what happened in the past, in no way are they going to be rescued by the national government.” It would be even better for Mr. Milei to head off the scrip by restoring to Argentina’s money an honesty that will pave the way for real growth.

The New York Sun

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