Structural Reforms in Argentina: Success or Failure ?


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Structural Reforms in Argentina: Success or Failure ?

Kiguel, 2002.

This paper evaluates the impact of the Convertibility Plan in Argentina on economic performance. It shows that the combination of a fixed exchange rate and far reaching structural reforms was successful through most of the nineties, as Argentina succeeded in eliminating inflation and it enjoyed its highest rates of growth since the 1920s. Nevertheless, at the end of 1998 Argentina entered a severe recession from which it has not yet recovered. A deterioration in the external environment as the dollar appreciated and less financial capital flowed to emerging markets required a reduction in nominal wages (especially in the public sector) and in government expenditures which did not take place. The lack of response eroded confidence, tax revenues fell as a result of the recession and financing disappeared. The exchange rate system finally collapsed in early 2002 and the government declared a default on public debt leading to what seems to be the most serious economic crisis that Argentina has ever experienced.