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Missed Expectations: The Argentine Convertibility

Author

Listed:
  • Sebastian Galiani

    (Department of Economics, Universidad de San Andres)

  • Mariano Tommasi

    (Department of Economics, Universidad de San Andres)

  • Daniel Heymann

    (CEPAL)

Abstract

This paper studies the process that led to the Argentine crisis. The crisis is understood as a major disappointment of previous expectations, indicated by widespread insolvencies and abrupt declines in consumption. The analysis concentrates on the sequence of public and private decisions, and the varying perceptions and policy incentives that motivated them. In the nineties Argentina searched for a new growth trend. During much of the period, the behavior of agents seemed to be based on the anticipation that current and future incomes could sustain a value of domestic spending much higher than in the past. The government was motivated to reinforce those expectations, for signaling and political economy reasons. The convertibility monetary regime not only provided a very visible nominal anchor, but also operated as a basic framework for financial contracts, mostly denominated in dollars. Dollar contracting implicitly presumed that the dollar value of incomes would support the servicing of debts. Despite precautionary measures, the reliance on the sustainability of the real exchange rate increased over time. In the late nineties exports stopped rising and the foreign supply of credit tightened. Facing these contraints, the economy contracted and the solvency of the government was put into question. The financial system was vulnerable both in the event of devaluation and that of a (large) deflation-cum-adjustment. As was implicit in its design and management, convertibility proved to have very large exit costs.
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Suggested Citation

  • Sebastian Galiani & Mariano Tommasi & Daniel Heymann, 2002. "Missed Expectations: The Argentine Convertibility," Working Papers 55, Universidad de San Andres, Departamento de Economia, revised Nov 2003.
  • Handle: RePEc:sad:wpaper:55
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Carlos A. Végh, 1993. "Exchange-Rate Based Stabilisation under Imperfect Credibility," International Economic Association Series, in: Helmut Frisch & Andreas Wörgötter (ed.), Open-Economy Macroeconomics, chapter 1, pages 3-28, Palgrave Macmillan.
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    6. Daniel Heymann, 1994. "Sobre la interpretación de la cuenta corriente," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 31-59, January-J.
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    10. Guidotti, Pablo E & Vegh, Carlos A, 1999. "Losing Credibility: The Stabilization Blues," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 23-51, February.
    11. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
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    Cited by:

    1. Rochet, Jean-Charles, 2006. "Optimal Sovereign Debt: An Analytical Approach," IDB Publications (Working Papers) 1591, Inter-American Development Bank.
    2. Jeannette Jackson & Maria Coolican, 2002. "Healthy Organizations and the Link to Peaceful Societies: Strategies for Implementing Organizational Change," William Davidson Institute Working Papers Series 536, William Davidson Institute at the University of Michigan.
    3. Martín Guzmán & Martín Fiszbein, 2011. "Un Marco para el Análisis de los Procesos Macroeconómicos en la obra de Prebisch," Department of Economics, Working Papers 084, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    4. mercado, p. ruben, 2007. "The argentine recovery: some features and challenges," MPRA Paper 58612, University Library of Munich, Germany.
    5. Martín Guzmán & Martín Fiszbein, 2011. "Un Marco para el Análisis de los Procesos Macroeconómicos en la obra de Prebisch," IIE, Working Papers 084, IIE, Universidad Nacional de La Plata.
    6. Vlad Ivanenko, 2003. "Non-monetary Trade and Differential Access to Credit in the Russian Transition," William Davidson Institute Working Papers Series 539, William Davidson Institute at the University of Michigan.
    7. Martin Guzman, 2009. "On the behavior of fiscal policy with costly expectations," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 29-44, January-D.
    8. Miller, Marcus & García-Fronti, Javier, 2005. "Credit Crunch and Keynesian Contraction: Argentina in Crisis," CEPR Discussion Papers 4889, C.E.P.R. Discussion Papers.
    9. Roberto Cortes Conde, 2008. "Spanish America Colonial Patterns: The Rio de La Plata," Working Papers 96, Universidad de San Andres, Departamento de Economia, revised Mar 2008.
    10. Marcos A. Buscaglia, 2003. "The Political-Economy of Argentina???s Debacle," William Davidson Institute Working Papers Series 2003-594, William Davidson Institute at the University of Michigan.
    11. Sotelsek, Daniel F. & Pavón, Lilianne, 2008. "The relation between foreign exchange and banking crises in emerging countries: information and expectations problems," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    12. Osvaldo Schenone, 2003. "Déficit y Convertibilidad en Argentina 1991-2001: Inconsistencia Asimétrica," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 768-773.

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    More about this item

    Keywords

    Argentina; convertibility plan;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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