In the midst of another financial crisis, Argentines have been voluntarily "dollarizing" their country.
Already 70 to 80 percent of loans are denominated in the United States currency. Dollars comprise about 60 to 70 percent of cash and bank deposits.
That's good news for US taxpayers. Because of seigniorage - the profit the US government makes when it issues new coins, currency, and credit - Americans' tax burden is lightened by hundreds of millions of dollars.
But to the 37 million Argentines, the dollar-peso choice is a troubling sign that they don't trust their own currency and banking system.
Last month, the Washington-based International Monetary Fund again rode to the rescue, promising $8 billion in emergency aid to shore up Argentina's banks. Perhaps $5 billion will be turned over this month. Without the loan, the banks might run out of liquidity, risking a deposit freeze that would damage an economy already in recession for three years. The Bush administration was deeply involved in negotiating the deal. It was regarded as a victory of pragmatism over ideology, caution over boldness.
During the presidential election, however, Republicans had sharply criticized the Clinton administration for similar repeated "bailouts" of indebted nations. They charged that such rescue packages created a "moral hazard," by encouraging nations to follow risky and unwise economic policies.
But Steven Hanke, an economist at Johns Hopkins University in Baltimore, Md., says the Bush bailout policy is "virtually identical" with Clinton's.
The main difference is that Bush Treasury officials became "overtly involved in the micro-management" of the Argentine negotiations in Washington, Mr. Hanke says. They were "a lot more clumsy."
Politics aside, will the latest bailout work? After all, it comes only nine months after Argentina received a $39.7 billion support package from the IMF.
Hanke says the latest IMF money will buy Argentina some time: "The problem will be deferred." It will provide Argentina enough funds to cover any shortage in servicing of its $128 billion in foreign debts this year and in 2002. These debts have grown rapidly in recent years with huge budget deficits.
Earlier this month, deposits in Argentina's banks rose slightly. Apparently the IMF loan prompted some Argentines to keep their money at home.
But many experts doubt the rescue will last for long. Economist Mark Weisbrot figures Argentina will eventually be forced to float its currency freely in the foreign exchange markets, letting demand and supply set its price. That would result in a sizable devaluation of the peso, which is now only partly pegged one-to-one to the dollar.
Mr. Weisbrot, co-director of the Center for Economic and Policy Research in Washington, also expects "restructuring" of Argentina's foreign debt.
In fact, terms for the final $3 billion of the IMF loan encourage restructuring of a portion of that debt. In effect, the US Treasury is encouraging American banks and other financial institutions to reduce the value of their loans to Argentina.
Former Treasury Secretary Nicholas Brady did the same in 1989 to defang the petrodollar debt problem of many developing nations.
Weisbrot would welcome such a write-off of Argentina's debts. He charges that the IMF rescue packages just add to Argentina's foreign debt and postpone an inevitable devaluation. Meanwhile, Argentina's debt-servicing costs worsen the plight of Argentina's "poor and working people disproportionately," he says. The Buenos Aires government intends to aim for a zero deficit in its budget.
Such fiscal restraint is contrary to what most economists regard as helpful in a slump. Hanke maintains that full dollarization - making the dollar Argentina's official currency - would quickly end the current flight of money from Argentina.
If Argentina did so, it would join Ecuador and Panama in having the greenback as its main currency. Though Russia has many billions of dollars in use, Argentina would become the largest dollarized economy abroad.
With a gross domestic product of $275 billion, Argentina is hardly an economic powerhouse. Its output of goods and services is about the same as that of Massachusetts. Nonetheless, the prospect of economic collapse in Argentina is a bit scary. Some fear the country's woes could spread to other developing nations, especially in Latin America. And North Americans have many billions invested in that region.
Hanke and other experts figure that getting the Argentine economy moving again is the real answer to its debt problem.
Doing that, though, isn't easy.