Restoring Economic Growth in Argentina
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 t...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/10/2693690/restoring-economic-growth-argentina http://hdl.handle.net/10986/18043 |
| Summary: | 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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