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Sunday December 3rd, 2023

Argentina’s pro-dollarization Milei wins amid Sri Lanka style objections

ECONOMYNEXT – Argentina’s Javier Milei, who has promised to close a central bank that was hyperinflating the peso and driving the country into repeated defaults, has won Presidential elections taking at least 56 percent of the vote.

“Today begins the end of Argentina’s decline,” Milei said after winning the vote. “Today ends the impoverishing model of the omnipresent state, which only benefits some while the majority suffers.”

Inflationist macro-economists and other academics within the country as well as outside severely opposed the move, similar to the way currency boards were criticized by inflationists in Sri Lanka, showing that chronic monetary problems are not linked to politicians but as claimed by some observes, the lack of doctrinal foundation in sound money.

READ MORE: Objection letter by 300 domestic economists: El espejismo de la dolarización

READ MORE: Objection letter by 100 mainly foreign economists including Thomas Picketty

Over 300 local economists in Argentina wrote a letter against dollarization, and another open letter was written by 100 more, which included foreign pro-inflationists.

A key argument was that Argentina’s central bank, having borrowed dollars and lost them to printed money, was in dollar debt and could not exchange domestic reserve money for dollars.

However, in other countries with market dollarization , transactions simply took place in dollars, and notes in circulation turned into dollars over time as forex earners spent the money domestic goods and services, curtailing imports by the same volume as legal tender laws were no longer enforced and businesses were allowed to denominate and transact in foreign currency.

In Argentina, several hundred billion US dollars are in any case believed to be held by citizens (upto 400bn according to some estimates), in various ways.

One of the unusual criticisms was that dollarization would force Argentina to balance the budget or manage to levels that markets can finance without inflation/depreciation.

“So, what’s the problem?,” questions US economist Steve Hanke, an advocate for dollarization in Argentina in a reply written in National Review.

Download working paper on common misconceptions about dollarization Hanke-working-paper-Argentina

Like in Sri Lanka in the case of currency boards, inflationists claimed that there are ‘pre-conditions’ to dollarization, including fiscal probity, not understanding that lower fiscal deficits and low debt to GDP ratios are a direct result of dollarization that takes place after the fact.

There were other unusual claims, including that Argentina’s downturns as the US as credit cycles were synchronized.

“Since 2000, the United States has had three recessions, totaling 28 months,” Hanke pointed out.

“Argentina has had eight recessions, including the current one, totaling 30 quarters, or 90 months, counting similarly to the way U.S. recessions are counted.

“It would help Argentina to stabilize and grow if it could converge with the U.S. frequency of recessions.

“If that isn’t bad enough, the signatories of the letters assume the improbable; namely, that the BCRA could moderate Argentina’s business cycles in ways that it has never been able to do.”

Others have proposed that the US dollar is not a good enough currency to dollarize. Hanke says Argentina law could recognize contracts drawn in the Euro or Real if that was an option required by market participants.

Hanke has in the past helped Montenegro end inflation by moving to the German Mark which became the Euro later.

However Milei in addition to providing sound money to protect the poor from macro-economic policy, has also proposed to ban abortion raising concerns, and cut government spending on education and health.

Though the subsidy bill automatically falls with dollarization as macro-economists lose the ability to impoverish the population with depreciation, cutting health and education budgets has drawn more reasoned criticism. (Colombo/Nov20/2023)

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Sri Lanka UGC wants to boost number of IT-related degrees

ECONOMYNEXT – Sri Lanka’s University Grants Commission is of the view to boost the number of Information Technology (IT) related degrees in state universities with an aim to pave the way for a digital economy.

Sri Lanka’shigher education system has been producing more graduates in Arts stream while the degrees in highly demanded IT and other engineering services are being looked at only now.

“We do have a high demand for engineering, science, AI, computer and electronical engineering

studies,” Chairman of University Grants Commission, Sampath Amaratunga, told reporters at aa media briefing on Friday

“However, while avoiding neglecting the humanities, we should develop new IT skills.”

Amaratunga confirmed that a student who studied in any stream could obtain an IT degree, including students who studied in the arts stream.

The UGC data show that out of 18,490 engineering technology stream students who sat for their Advanced Levels (A/L) in 2022, 10634 were eligible for university.

“Even streams like agriculture should be encouraged to use technology,” Amaratunga said. (Colombo/Dec 2/2023)

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Sri Lanka leader inaugurates Climate Justice Forum at COP28 in Dubai

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe launched Climate Justice Forum (CJF) at the ongoing 2023 United Nations Climate Change Conference (COP28) held in Dubai in a move to gather support for vulnerable nations hit by climate-change led disasters.

This year’s climate summit held in Dubai’s EXPO2020 features a raft of issues for countries working to find common ground in tackling climate change, including whether to phase out fossil fuels and how to finance the energy transition in developing countries.

Wickremesinghe inaugurated the Climate Justice Forum at COP28 on Saturday and emphasized the critical importance of addressing climate issues with a sense of justice and equity.

The President had been in talks with many nations vulnerable to climate change disasters including African and South American countries to get their support for the CJF.

The move is to compel advanced and developed countries to look into the poor nations hit by the climate changes and help them to get over economic and debt burdens by either investing more in green energy initiatives or writing off debts to ease financial pressure.

Sri Lanka, which is now facing an unprecedented economic crisis, has seen increasing losses and damages, both human lives and physical properties due to climate change-led disasters like floods, drought, and earth slips.

In his speech at the COP28 forum, Wickremesinghe on Friday said the Climate Justice Forum will provide a platform for constructive and proactive engagements. (Dubai/Dec 2/2023)

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Sri Lanka IMF review goes to executive board on December 12

ECONOMYNEXT – The first review of Sri Lanka’s International Monetary Fund program is scheduled to go the lender’s Executive Board for consideration on December 12.

Sri Lanka officials were expecting the review to be completed in December as soon as official creditors gave their assurances.

According to the notice Sri Lanka had missed one performance criterion and has requested modifications.

Sri Lanka has outperformed on a number of quantity targets including inflation. In addition to quantity PCs there was also one non-accumulation of arrears.

There would also be re-phasing of access. The review was originally expected around September with another review based on December data, leading to September and March disbursements.

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