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Currency Board and Debt Trap: Evidence from Argentina and Relevance for Estonia

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  • Francois Gurtner

Abstract

This paper analyses the November 2000 liquidity crisis that brought Argentina near default on its foreign debt. The main purpose of this paper is to assess whether this crisis may be taken as a warning signal for Estonia, given the similar exchange-rate system shared by the two countries. It seems that with a low level of public debt and a balanced budget, Estonia will not face a similar liquidity crisis as its Latin American counterpart, which remained heavily reliant on foreign borrowings. But the substantial real exchange-rate appreciation of the kroon under the Currency-Board Arrangement has resulted into serious external imbalances, which will need to be corrected to avoid balance of payments pressure and reduce Estonia’s high dependency on the level of foreign direct investments. Classification-JEL:

Suggested Citation

  • Francois Gurtner, 2002. "Currency Board and Debt Trap: Evidence from Argentina and Relevance for Estonia," CERT Discussion Papers 0204, Centre for Economic Reform and Transformation, Heriot Watt University.
  • Handle: RePEc:hwe:certdp:0204
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    References listed on IDEAS

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    10. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
    11. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
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    13. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals; A Methodological Comparison of BEERs and FEERs," IMF Working Papers 98/67, International Monetary Fund.
    14. Nada Choueiri & Graciela Laura Kaminsky, 1999. "Has the Nature of Crises Changed? A Quarter Century of Currency Crises in Argentina," IMF Working Papers 99/152, International Monetary Fund.
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    Keywords

    Argentina; balance of payments crisis; Currency Board Arrangment; Estonia; transition;

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