Mexico should follow Argentina's model and "dollarize" its economy, making its peso fully convertible with the U.S. dollar, and should privatize its petroleum and power crown jewels to restore its monetary health, said Barton M. Biggs, chairman, Morgan Stanley Asset Management, New York, in a report to clients.
The United States shouldn't provide Mexico with any loan guarantee to shore up the peso without requiring the country to put up collateral, like shares in its state-owned oil and power monopolies, he added.
To "dollarize" means to back the peso one for one with dollars. Mexico should get the dollars to back its money supply on loan from the International Monetary Fund, and then the country should commit to a major privatization program to pay back the loan, he said.
Mexico should use its peso crisis "to end the nationalistic jingoism of the past" and adopt constitutional amendments to allow for such privatizations, he added.