Argentina and the Fund: From Triumph to Tragedy / Edition 1

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The catastrophic crisis of late 2001 and early 2002 marks the tragic end to Argentina's initially successful, decade-long experiment with sound money and market-oriented economic reform. The IMF consistently supported Argentina's stabilization and reform efforts in the decade leading up to the current crisis, and often pointed to many of Argentina's policies as examples for other emerging market economies to emulate.

In this analysis, former IMF Chief Economist Michael Mussa addresses the obvious question: What went wrong in Argentina and what critical errors did the IMF make in either supporting inappropriate policies or in failing to press for alternatives that might have avoided catastrophe? He emphasizes that the persistent inability of the Argentine authorities at all levels to run a responsible fiscal policy-even when the Argentine economy was performing very well-was the primary avoidable cause of the country's catastrophic financial collapse. The IMF failed to press aggressively for a more responsible fiscal policy. Mussa also addresses the role of the Convertibility Plan, which linked the Argentine peso rigidly at parity with the U.S. dollar and played a central role in both the initial success and ultimate collapse of Argentina's stabilization and reform efforts. While the IMF accepted this plan as a basic policy choice of the Argentine authorities so long as it remained viable, it erred in the summer of 2001 by extending further massive support for unsustainable policies, rather than insisting on a new policy strategy that might have mitigated some of the damage from a crisis that had become unavoidable.

Mussa moves on to discuss what needs to be done to restore economic and financial stability in Argentina and begin the process of recovery, including the proper role that the IMF and the international community. He also examines what the IMF can do to avoid repeating the types of mistakes it made in the tragic case of Argentina.

Author Biography: Michael Mussa, a senior fellow at the Institute for International Economics, served as Economic Counsellor and Director of the Department of Research at the International Monetary Fund from 1991-2001, where he was responsible for advising the Management of the Fund and the Fund's Executive Board on broad issues of economic policy and in providing analysis of ongoing developments in the world economy. Dr. Mussa's main areas of research are international economics, macroeconomics, monetary economics, and municipal finance. He has published widely in these fields in professional journals and research volumes. By appointment of President Ronald Reagan, Dr. Mussa served as a Member of the U.S. Council of Economic Advisers from August of 1986 to September of 1988.

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Editorial Reviews

Foreign Affairs
In late 2001, the government of Argentina defaulted on its outstanding debt, the largest sovereign default in history. The banking system collapsed, and the Argentine economy went into deep economic depression. Mussa, former chief economist at the International Monetary Fund, here gives a brief and cogent account of what happened, why it happened, and how it might have been avoided. He also addresses the role of the IMF (which provided exceptional financial support to Argentina in 2001) and lessons for future IMF lending. The fundamental problem, according to Mussa, is that Argentina's fiscal condition (federal and provincial) was inconsistent with its Convertibility Plan, which involved a strong commitment to one-to-one convertibility between the peso and the U.S. dollar. One or the other had to yield, but neither did until the government's financial crisis. He might have added that Argentina's decision to join Mercosur in 1993 committed it to greater economic engagement with crisis-prone Brazil, which further reduced the probability that the Convertibility Plan could survive indefinitely after its initial successes.
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Product Details

  • ISBN-13: 9780881323399
  • Publisher: Peterson Institute for International Economics
  • Publication date: 7/16/2002
  • Series: Policy Analyses in International Economi
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 108
  • Product dimensions: 5.90 (w) x 8.80 (h) x 0.30 (d)

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