Joachim Becker

Dollarisation in Latin America and Euroisation in Eastern Europe: Parallels and Differences

56 Seiten · 8,97 EUR
(11. Januar 2008)

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In both sub-continents, Joachim Becker observes different strands of policies. Several South American countries experienced processes of informal dollarization over the last thirty years. These were the reaction to phases of high or even hyper-inflation. Unofficial dollarization was particularly pronounced in countries with a strong tendency towards financial accumulation, like Argentina and Uruguay.

However, some states, like Brazil, consciously suppressed dollarization in order to preserve policy space in the face of grave social tensions. In the 1990s, several Latin American governments opted for exchange rateanchored stabilization programs in order to reduce inflation and in this way were able to gain legitimacy. While theses program succeeded in bringing down the rates of inflation, they invariably resulted in nonsustainable current account deficits, escalating foreign debt and, in the medium run, increased social polarization. Financial crises ensued. In the non-dollarized economies, they took the form of exchange rate crises while in semi-dollarized economies usually a double exchange rate and banking crisis resulted from the neo-liberal policies. In some of the semidollarized economies, complete and official dollarization was put on the agenda as a way to avoid financial crises. In Ecuador, such a decision was taken. Here, one of the motivations seems to have been to severely reduce the policy space for future governments which might have a quite distinct social and political coloring. In Argentina, the pro-dollar camp of Central Bank officials and representative of service-related transnational corporations lost the battle against the partisans of a re-pesification represented by domestic economic conglomerates with significant export interests and sections of the Peronist party. The decision to re-pesify favoured the productive sectors of the Argentinian economy.

In the case of Central and Eastern Europe, informal euroization can mainly be observed in the poorer countries which have gone through experiences of high inflation (Baltic States, ex-Yugoslavia, Romania and Bulgaria). In a number, although not all of these states, steps towards official euroization have been made. In this sub-region, a distinction needs to be made between official euroization outside and inside the European Union. Euroization outside the EU is insofar institutionally closer to the South American experience, as there is no influence on the monetary policies of the core central bank nor is there a lender of last resort. In two territories – Montenegro and Kosovo – the DM and later the euro was adopted as the official currency. In both cases this step was a central element of strategies of separation from Yugoslavia. Thus, the decision was primarily political. In Kosovo, the protectorate administration took the decision. The political aims were in fact promoted by complete euroization. Low inflation rates had also been achieved, which was important for the acceptance of the new currency. However, weak productive structures seem to have been weakened even further more. The trade deficits do not seem to be sustainable in the long run. For the moment, they have been covered to some degree by real estate FDI in Montenegro and foreign subsidies in Kosovo. The rationale behind the introduction of the currency boards and its consequences was similar in Bosnia and Hercegovina. Thus, the rationale behind euroization outside of the EU was different from Latin America, while the economic consequences – e.g. weakening of most productive sectors – were similar.