February 1, 2001
Just as one sick person can spark an epidemic of the flu, so too can one individual set off a wave of change in the economic policy sphere. This is what happened after former Argentine President Carlos Menem pegged the peso to the dollar in April 1991 and went further by suggesting in January 1999 that the country dollarize its economy. Even though Menem's economic advisors studied dollarization to death, he put the ball in play. Since then, it hasn't stopped bouncing around the region: Ecuador, El Salvador and Guatemala have recently adopted various forms of dollarization.
Menem obviously knew that the conditions were ripe for dollarization. Latin currencies have been nothing but trou
Critics say Argentina's problems are due to its fixed exchange rate and the economic effect of pegging the peso to the dollar. Steve H. Hanke, professor of applied economics at the Johns Hopkins University, chairman of the Friedburg Mercantile Group, Inc. in New York and the leading theoretician on dollarization, firmly believes that dollarizing is the best cure for Latin American economies. But without complementary - and somewhat radical - fiscal and banking reforms, Hanke says countries will fail to get a bang for their buck.