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Restoring economic growth in Argentina

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  • William R. Cline

Abstract

The author reviews the debate on the causes of Argentina?s economic collapse in late 2001 and 2002 and examines the measures needed to help restore sustainable growth. Some analysts stress fiscal imbalances, others overvaluation of the peso under the convertibility plan, and others external shocks. Cline judges that all three contributed substantially, but that it was their inflammatory interaction with domestic political unraveling that forced the bad-equilibrium outcome. He reviews the nascent recovery since the second half of 2002 and the important success of avoiding hyperinflation. Looking forward, the author?s analysis underscores the importance of strengthening fiscal performance, in part by increasing relatively low collections of value added taxes. He stresses the need for reform of the system of revenue sharing with the provinces; the importance of strengthening the banking system, which was severely weakened by asymmetric conversion of assets and liabilities from dollars to pesos; and the need to arrive at equitable restructuring of utility tariffs to reestablish confidence of foreign direct investors in the rules of the game. Restructuring government debt is also central to restoring growth. A simple model indicates that a relatively ambitious target for the primary fiscal surplus and a restricted set of senior-status debt will be needed to limit the haircut on junior debt to amounts compatible with longer-term creditor perceptions of fairness. The author also considers the new dynamics of bargaining with the International Monetary Fund (IMF). He judges that although conditionality is arguably appropriately less stringent as only rollover is involved, and despite the large outstanding debt to the IMF, there are limits to how lenient the Fund can and should be in key areas with potential for setting international precedents.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3158.

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Date of creation: 01 Oct 2003
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Handle: RePEc:wbk:wbrwps:3158

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Public Sector Economics&Finance; Payment Systems&Infrastructure; Banks&Banking Reform; Economic Theory&Research; Banks&Banking Reform; Public Sector Economics&Finance; Environmental Economics&Policies; Economic Stabilization;

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References

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  1. Gerd Schwartz & Pau Rabanal & Mario I. Bléjer & Alfredo Mario Leone, 2001. "Inflation Targeting in the Context of IMF-Supported Adjustment Programs," IMF Working Papers 01/31, International Monetary Fund.
  2. Arturo C. Porzecanski, 2005. "Argentina: The Root Cause of the Disaster," International Finance, EconWPA 0510014, EconWPA.
  3. Alberola, Enrique & Lopez, Humberto & Serven, Luis, 2004. "Tango with the Gringo: the hard peg and real misalignment in Argentina," Policy Research Working Paper Series 3322, The World Bank.
  4. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  5. Mariano Tommasi, 2002. "Federalism in Argentina and the Reforms of the 1990s," Working Papers, Universidad de San Andres, Departamento de Economia 48, Universidad de San Andres, Departamento de Economia, revised May 2002.
  6. Marcus Noland & Howard Pack, 2003. "Industrial Policy in an Era of Globalization: Lessons from Asia," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 358, July.
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Cited by:
  1. World Bank, 2003. "Argentina : Reforming Policies and Institutions for Efficiency and Equity of Public Expenditures," World Bank Other Operational Studies 14637, The World Bank.
  2. Eduardo A. Cavallo & Eduardo Fernández Arias & Andrew Powell, 2014. "Is the Eurozone on the Mend? Latin American Examples to Analyze the Euro Question," IDB Publications 85655, Inter-American Development Bank.

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