The article that is reproduced below substantiates a recent interview with a leading Brazilian economist, César Benjamin, about the coming adoption of a colonial-like currency board scheme by Brazil. The Argentinan peso is already pegged to the US dollar. The next step would the complete dollarization of both countries and, as a necessary consequence, the rest of the Americas as well, including Mexico (and what about Canada?).
It is well known that the new president of the Brazilian Central Bank, the former Soros agent Arminio Fraga, endorses the dollarization proposal. This is the most serious menace to the independence of Latin America since the wars for independence in the early XIX th century.
As soon as I can I intend to translate a summary of that interview into English after obtaining the proper authorization. It is written in Portuguese, and so those who have a good command of Spanish may read it (twin languages), asking for it either from Benjamin himself <cesarb at nutecnet.com.br> or from me.
In solidarity,
Roberto Magellan
################################################### Date: Thu, 25 Feb 1999 From: Louis Proyect <lnp3 at panix.com> Subject: After Puerto Rico, statehood for Argentina and Brazil next?
NY Times, February 25, 1999
Buck Doesn't Stop: Now Argentina May Adopt it
By CLIFFORD KRAUSS
BUENOS AIRES, Argentina -- A month after President Carlos Saul Menem first floated the idea of trading the Argentine peso for the U.S. dollar, U.S. and Argentine officials are considering the complexities of making the Federal Reserve the central bank of both countries.
But officials of both countries say there is a long way to go before negotiations take hold and actually produce a treaty. Still, no one is completely dismissing the idea that dollars could become the currency of Argentina and the Fed could become the lender of last resort.
Menem also went a step further by suggesting that neighboring Brazil resolve its economic crisis by pegging the value of its currency one-to-one to the dollar, just as Argentina did in 1991. That, too, would be a move toward replacing Brazil's currency, the real, with the dollar.
Argentine officials say that once Argentina and Brazil converted their currencies to the dollar, they could move the entire Western Hemisphere decisively toward a regional currency like Europe's new euro. More than likely, the officials say, Mexico would also follow Argentina's lead, and the hemispheric currency would inevitably become the greenback.
"It's a shocking novelty for a country like Argentina to make this kind of a proposal," said Carlos Fedrigotti, president of Citibank in Argentina. "President Menem has started the debate and it has to do with the future of not only Argentina but of the entire continent, which will have to eventually fall under the influence of the dollar in trade, capital flows and ultimately in geopolitics."
The dollar is already omnipresent in Argentina. Most cab drivers and restaurants accept dollars. ATM machines offer both dollars and pesos. Virtually all mortgages and apartment rental contracts are drawn up in dollars. Even cellular phone bills are stated in dollars and customers are free to pay in in either U.S. or Argentine currency.
As of Feb. 15, $36.9 billion in Argentine certificates of deposit were denominated in dollars compared with $13.6 billion in pesos. Nevertheless Menem's proposal to totally replace the peso with the dollar has been greeted by sneers by much of the Argentine opposition and the news media. Brazil has said it has no interest in the idea, although that could change if its currency continues to slide.
Federal Reserve chairman Alan Greenspan has expressed skepticism. Argentine private sector enthusiasts and government economists say the idea is probably years away from fruition, even as they argue that replacing the peso with the dollar would lower interest rates and boost foreign trade and investment.
But with only 10 months remaining in his term, Menem has made what he calls "dollarization" of the economy his top economic and diplomatic priority. Senior Argentine officials have begun informal talks with officials at the U.S. Treasury Department and Federal Reserve, and Deputy Treasury Secretary Lawrence H. Summers has encouraged the Argentines to make a formal treaty proposal.
"Dollarization could be just a good idea that disappears in a few months because of politics," Miguel A. Kiguel, Argentina's undersecretary of finance, said in an interview. "Or, it could be a good idea that will generate its own positive momentum. My guess is Argentina could be a very important pilot case that would open the door to other countries, mostly in Latin America, to adopt the dollar."
Today only Panama and Liberia, two tiny countries with long historical attachments to the United States, use the U.S. currency as their own. (Panama ran short of the greenbacks several years ago but generally it has had enough of them to go around.) And in no country in Latin America is the dollar exchanged anywhere nearly as freely as it is here.
Argentine economists note that in technical terms, converting Argentina into a dollar economy would be no large feat. Under the 1991 convertibility scheme, all peso notes issued by the Argentine central bank are backed by dollar or gold reserves. In the last year, all government bonds, even those sold on local markets, have been denominated in dollars.
Menem has asked his senior economic advisers to draw up plans to pay government employees in dollars and collect taxes in dollars, moves that would speed a transformation to a dollar economy.
Argentines became attached to the dollar in the 1980s, when inflation galloped so fast that people converted their paychecks to dollars as fast as they could. Of the $5 billion in Argentine bank accounts in April 1991, when the peg was installed, nearly 40 percent were in dollars. The peg virtually ended capital flight, and Argentine bank accounts have grown to $78 billion, 57 percent of which are now held in dollar accounts.
"Our people already can freely choose whether they deal in pesos or dollars," noted Sen. Domingo Cavallo, a former economy minister.
But by publicly raising the issue of a future replacement of the peso with the dollar almost immediately after Brazil devalued the real six weeks ago, government officials said Menem was sending a powerful signal to the international investment community that Argentina had no intention of following Brazil's example. They said Menem would convert Argentina into a dollar economy by emergency decree should the peso come under a severe speculative attack.
Menem's move succeeded in reducing the difference in interest rates between Argentine bonds and the lower rates on U.S. Treasury bills over the last month. And in another sign of renewed confidence, Argentine commercial bank accounts have accumulated funds since Menem first spoke of "dollarization."
Argentine officials said they want to negotiate a treaty with the United States that would make the Federal Reserve the lender of last resort in case an Argentine bank should fail. They also want the U.S. government to compensate the loss Argentina would sustain of $750 million in yearly interest earned from the U.S. Treasury bills the Central Bank currently holds. That interest would be automatically lost once the Central Bank sold its dollar reserves to the public to take pesos out of circulation.
To entice Clinton administration officials -- and eventually U.S. senators whose approval would be needed for any treaty negotiated -- Menem's advisers are drawing up a series of proposals. One would give the Federal Reserve a strong supervisory role over Argentine financial institutions. Another would guarantee that the Argentine government would control its fiscal and current account deficits. And a third would liberalize the Argentine private sector's ability to fire employees to make local businesses and products more competitive on international markets.
"The Fed and the Treasury," Kiguel, the undersecretary of finance, said, "are taking an interest."
Copyright 1999 The New York Times Company
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Date: Thu, 25 Feb 1999 13:09:58 -0600 From: Erik Toren <etoren at stcc.cc.tx.us> Subject: Re: After Puerto Rico, statehood for Argentina and Brazil next?
Hola A Todos:
So scarily simple for the evergrowing presence and control of multinational corporations upon international communities. Still, though Mexico has not gone far down the road as Argentina, Panama, or Liberia, there have been rumbles of doing the same. At least in certain areas of the Texas-Mexico border (Reynosa, Nuevo Laredo, Matamoros, and Nuevo Progreso), the Dollar is used in transactions rather than the Peso. One extreme example is the tourist town of Nuevo Progreso, Tamaulipas where any visitor is assumed to be a U.S. tourist thus everything is advertized, sold and bought with Dollars. You will get an annoyed look if you ask how much in Pesos. In less extreme forms, Nuevo Laredo and Reynosa, Tamaulipas, in stores where tourists go, the Dollar is the monetary use. There also some instances where local landlords will ask for rent to be paid in US Dollars.
erik toren way, way down South Texas yonder
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Date: Fri, 26 Feb 1999 From: "Alan Bradley" <alanb at elf.brisnet.org.au> Subject: Re: After Puerto Rico, statehood for Argentina and Brazil next?
From: Louis Proyect
" Buck Doesn't Stop: Now Argentina May Adopt it
To entice Clinton administration officials -- and eventually U.S.
senators whose approval would be needed for any treaty negotiated -- Menem's
> advisers are drawing up a series of proposals. One would give the Federal
> Reserve a strong supervisory role over Argentine financial institutions."
(...).
Naturally.
Of course, Argentina could forget any delusions of being a sovereign state it may ever have held.
It's funny, I was just reading an article on the history of Trotskyism in Argentina. One of the main lines of debate in the early days was whether or not there was a need for 'national liberation' in Argentina. Well, if this goes ahead, Argentina would just be a plain colony of the US.
Maybe Argentina and Brazil should become US states? It would probably do wonders for US politics, and it would be better than this kind of dependence. And there's no US embassy in Washington....
Alan Bradley alanb at elf.brisnet.org.au