The Anatomy of a Multiple Crisis : Why Was Argentina Special and What Can We Learn from It?
The Argentine crisis has been variously blamed on fiscal imbalances, real overvaluation, and self-fulfilling investor pessimism triggering a capital flow reversal. The authors provide an encompassing assessment of the role of these and other ingred...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2003/06/2416987/anatomy-multiple-crisis-argentina-special-can-learn http://hdl.handle.net/10986/18175 |
| Summary: | The Argentine crisis has been variously
blamed on fiscal imbalances, real overvaluation, and
self-fulfilling investor pessimism triggering a capital flow
reversal. The authors provide an encompassing assessment of
the role of these and other ingredients in the recent
macroeconomic collapse. They show that in the final years of
convertibility, Argentina was not hit harder than other
emerging markets in Latin America and elsewhere by global
terms-of-trade and financial disturbances. So the crisis
reflects primarily the high vulnerability to disturbances
built into Argentina's policy framework. Three key
sources of vulnerability are examined: the hard peg adopted
against optimal currency area considerations in a context of
wage and price inflexibility; the fragile fiscal position
resulting from an expansionary stance in the boom; and the
pervasive mismatches in the portfolios of banks'
borrowers. While there were important vulnerabilities in
each of these areas, neither of them was higher than those
affecting other countries in the region, and thus there is
not one obvious suspect. But the three reinforced each other
in such a perverse way that taken jointly they led to a much
larger vulnerability to adverse external shocks than in any
other country in the region. Underlying these
vulnerabilities was a deep structural problem of the
Argentine economy that led to harsh policy dilemmas before
and after the crisis erupted. On the one hand, the Argentine
trade structure made a peg to the dollar highly inconvenient
from the point of view of the real economy. On the other
hand, the strong preference of Argentinians for the dollar
as a store of value-after the hyperinflation and
confiscation experiences of the 1980s-had led to a highly
dollarized economy in which a hard peg or even full
dollarization seemed reasonable alternatives from a
financial point of view. |
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