Latin America and the Caribbean
Argentina
A weak central government, declining economy, and
uncontrolled deficits undermine the role of the credit markets
in subnational finance.Rodrigo Trelles Zabala
LessonsLong plagued by macroeconomic instability and political up-
heavals, Argentina appeared to have set the right course with
the Convertibility Plan in 1991, undertaking a number of reforms
and pegging the Argentine peso to the U.S. dollar. However, the
solutions to the country’s many related structural problems ei-
ther never took hold or proved to be the wrong ones. A declin-
ing economy and growing government deficits undermined the
national administration, and the ensuing devaluation and de-
fault not only closed the international financial markets to Ar-
gentine borrowers but also crippled the domestic markets.Subnational borrowers have played a major part in the nation’s
recurring financial crises. The reasons for this include the loose
federal structure of government (in which the provinces, not the
federal government, form the core of the system), the appetite
for deficit spending, and the extensive government ownership of
-219-
