Argentina Is Recovering

The first glimpses of Argentina's recovery can be seen. To many, what happened, and what is happening there seems a mystery. Abandoning "convertibility," i.e. a fixed exchange rate system, was supposed to be a disaster - and it was. Output fell and unemployment increased dramatically. Fear of these costs, combined with IMF bailouts, kept Argentina from abandoning its currency board long after it was clear that the system could not be sustained. This stubbornness made matters worse when things finally fell apart.

But what primarily kept Argentines wedded to a system that could not work was fear of hyperinflation. When I asked people, during my visits to Buenos Aires, why Argentina persisted in this economic folly, a single answer came back: "Yes, when Brazil went off its peg, its inflation remained moderate; but Brazil is Brazil, and we are Argentina." There was almost pride in the lack of confidence Argentina's people had in their institutions and their ability to manage without the shackles of convertibility.

The feared hyperinflation, so far, has not materialized. To be sure, there has been the normal inflation associated with large increases in import prices that always follow large devaluations, but rather than setting off a spiral of price increases, inflation rates appear to be dampening. Argentina seems set to join the long list of countries - Brazil, Korea, Russia, Thailand, and Indonesia - that managed devaluations without runaway inflation.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/qFbCVpb;
  1. An employee works at a chemical fiber weaving company VCG/Getty Images

    China in the Lead?

    For four decades, China has achieved unprecedented economic growth under a centralized, authoritarian political system, far outpacing growth in the Western liberal democracies. So, is Chinese President Xi Jinping right to double down on authoritarianism, and is the “China model” truly a viable rival to Western-style democratic capitalism?

  2. The assembly line at Ford Bill Pugliano/Getty Images

    Whither the Multilateral Trading System?

    The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

  3. Donald Trump Saul Loeb/Getty Images

    The Globalization of Our Discontent

    Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

  4. A general view of the Corn Market in the City of Manchester Christopher Furlong/Getty Images

    A Better British Story

    Despite all of the doom and gloom over the United Kingdom's impending withdrawal from the European Union, key manufacturing indicators are at their highest levels in four years, and the mood for investment may be improving. While parts of the UK are certainly weakening economically, others may finally be overcoming longstanding challenges.

  5. UK supermarket Waring Abbott/Getty Images

    The UK’s Multilateral Trade Future

    With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

  6. The Year Ahead 2018

    The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

    Order now