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Devaluation with contract redenomination in Argentina

Author

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  • Charles Calomiris

Abstract

This study offers the first empirical microeconomic analysis of the effectiveness of dollar debt and contract redenomination policies to mitigate adverse financial and relative price consequences from a large devaluation. An analysis of Argentina's policy of devaluation with redenomination in 2002, in contrast to Mexico's policy of devaluation without debt redenomination in 1994-1995, shows that devaluation benefited tradables firms, and that dollar debt redenomination in Argentina benefited high-dollar debtors, as shown in these firms' investment behavior, especially non-tradables firms whose revenues in dollar terms were adversely affected by devaluation. That investment behavior contrasts with the experience of Mexican firms in the aftermath of Mexico's large devaluation, in which non-tradables producers with high dollar debt displayed significant relative reductions in investment. Stock return reactions to Argentine debt redenomination indicate large, positive, unanticipated effects on high-dollar debtors from debt redenomination. Energy concession contract redenomination likewise increased investment by high energy users in Argentina, and that benefit was apparent also in positive stock returns of those firms.
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Suggested Citation

  • Charles Calomiris, 2007. "Devaluation with contract redenomination in Argentina," Annals of Finance, Springer, vol. 3(1), pages 155-192, January.
    • Handle: RePEc:kap:annfin:v:3:y:2007:i:1:p:155-192
    DOI: 10.1007/s10436-006-0064-9
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    Citations

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    Cited by:

    1. Hulya Dagdeviren, 2011. "Political Economy Of Contractual Disputes In Private Water And Sanitation:Lessons From Argentina," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 82(1), pages 25-44, March.
    2. David Amiel & Paul-Adrien Hyppolite, 2015. "Is There An Easy Way Out? Private Marketable Debt And Its Implications For A Euro Breakup: The Case Of France," Working Papers hal-01117019, HAL.
    3. Erwin Bramana Karnadi & Putu Rusta Adijaya, 2017. "Redenomination: Why is It Effective in One Country but Not in Another?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 186-195.
    4. Charles Goodhart & Dimitrios Tsomocos, 2007. "Financial stability: theory and applications," Annals of Finance, Springer, vol. 3(1), pages 1-4, January.
    5. Mark Weisbrot & Rebecca Ray, 2010. "Latvia’s Recession: The Cost of Adjustment With An “Internal Devaluation”," CEPR Reports and Issue Briefs 2010-02, Center for Economic and Policy Research (CEPR).

    More about this item

    Keywords

    Devaluation; Redenomination; Pesification; Argentina; F30; E42; G3; G32; K2;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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