Dollarization is the only way out for Argentina from its deepening debt trap, top economist Steve Hanke says

• Argentina's only way out of its debt trap is by adopting the US dollar as its currency, Steve Hanke said.
• "The only way out of ARG's debt trap = DOLLARIZATION," the top economist said in a tweet.

Argentina's only way out of its deepening debt trap is adopting the dollar as its currency, top economist Steve Hanke said.

The comments echo the views of the frontrunner in the South American nation's presidential election, Javier Milei, who has proposed embracing the greenback as a solution to triple-digit inflation.

The Argentine peso has collapsed in value over the past decade as the nation struggled with hyperinflation and a mountain of borrowings. Its external debt ballooned to 45% of its GDP at the end of 2022, or $277 billion, according to CEIC data. Consumer prices surged 114% in May from a year earlier.

The International Monetary Fund approved a fresh $5.3 billion loan for the country this year. The lender had put in place a $44 billion credit program for Argentina in 2022, replacing an earlier $57 billion package that failed.

"The IMF approved another $5.3bn disbursement for Argentina (read: the world's biggest deadbeat). The only way out of ARG's debt trap = DOLLARIZATION," Hanke said in a Sunday tweet.

Argentina's peso has tanked against the dollar every year since 2008, making it more expensive for the country to purchase any greenback. The peso has plunged 35% against the dollar so far this year, following a 44% drop in 2022.

Insider's Huileng Tan reported that Argentina's currency crisis, where it's facing a shortage in the US dollar, is so bad that it's allowing commercial banks to set up deposit accounts in the Chinese yuan. The shortage was caused by an ongoing drought that struck the country's agricultural exports, depleting the central bank's dollar reserves to their lowest level since 2016.

"Against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability, address rising inflation and recent policy setbacks, as well as ensure achievement of underlying program objectives," IMF's managing director Gita Gopinath said in a March press release.

Dollarization has been a highly debated topic of late, as emerging economies increasingly make moves to detach themselves from the greenback's dominance. China and India have been key players in the anti-dollar drive, with the latter nation pushing for the use of the Indian rupee in trade.

Read more: Forget dedollarization — Argentina may adopt the greenback as its currency and abandon the peso