People demonstrate against the government's negotiations with the International Monetary Fund (IMF) in Buenos Aires EITAN ABRAMOVICH/AFP/Getty Images

The Way Out of Argentina’s New Crisis

Recently, Argentina suffered another textbook attack on its currency and was forced to seek help from the IMF. With markets calm for a fortnight, now is the time to assess what went wrong, and what the country can – and must – do to prevent instability from returning.

SANTIAGO – The late MIT economist Rüdiger Dornbusch used to tell his students in the 1980s that there are four kinds of countries: rich, poor, Japan, and Argentina. No one frets anymore about Japan buying its way to world domination. But the world is worrying again about Argentina.

The country has just suffered another textbook attack on its currency. On April 24, the yield on ten-year US Treasury bonds broke 3% for the first time since 2014. On the same day, investors began dumping Argentine pesos and seeking the security of a surging dollar. To stabilize its currency at a much-depreciated rate, Argentina had to jack up interest rates to 40% and seek help from the International Monetary Fund.

After all the turmoil, markets have been calm for a fortnight. Now is the time to assess what went wrong, and what the country can – and must – do to prevent instability from returning.

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