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December 28, 2004
Why Did Argentina's Economy Improve?
Continuing with the theme of great blogging on the Sunday New York Times, Brad Setser reacts to an article noting "Argentina's Economic Rally Defies Forecasts." Setser sees a pretty conventional route out of the meltdown in 2001-2002.
The number one reason for Argentina's financial and economic stabilization is its belated conversion to fiscal discipline -- or what in the old days might have been called a conservative fiscal policy. Why no hyper-inflation after Argentina's default? The government matched revenues and expenditures, avoiding the need to print money. Hardly radical.
... the government has not ran an expansionary fiscal policy after its default. The initial impetus for Argentina's recovery came from the devaluation, which led to a surge in export revenues (measured in local currency terms), not government policies to spur consumption. Government spending initially had to fall to match falling revenue.
The strongest indictment of the IMF is that an Argentine government that explicitly defines its policy in opposition to the IMF has adopted a far more conservative fiscal stance than any Argentina government that embraced the IMF in the 1990s.
Brad goes on to further critique the IMF strategy and generally cast some doubt on the wisdom of fixed exchange rate policies (by dollarization, or otherwise). Read this one too.
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