The Next Great Globalization: How Disadvantaged Nations Can Harness Their Financial Systems to Get Rich

By Frederic S. Mishkin | Go to book overview

Seven
Argentina, 2001–2002

The story of Argentina is the most depressing of all the case studies in this book. Argentina did many things right in developing a financial system that would promote economic growth. Unfortunately these efforts were not enough to ensure success for this emerging market economy. Structural problems in the Argentine economy, a failure to deal with fiscal problems, and some bad luck, which weakened macroeconomic fundamentals, led to a financial crisis that was far more devastating in a more long-lasting way than the crises in Mexico and South Korea.


Macroeconomic Fundamentals before the Crisis

Argentina's sad story begins with the high hopes engendered by a major shift in economic policy under the presidential administration of Carlos Menem: the adoption of the Convertibility Plan in April 1991.1


The Convertibility Plan

After a bout of hyperinflation in which inflation rose above 2000% in 1990, Argentina, under its minister of the economy, Domingo Cavallo, embarked on a bold plan of reform with the enactment of the Convertibility Law in April 1991. This law put in place a strong commitment to fixing the exchange rate of the Argentine peso, called a currency board. A currency board fixes the

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