Argentina's Currency Crisis: Solutions
From Dickinson College Wiki
How they fixed it
- There existed governmental encouragement of import substitutions and accessible credit for businesses to restart and regrow.
- The government developed an agressive plan to improve tax collection - imports taxes and royalties
- They also set aside money for social welfare
- The government also took measures to strengthen the currency
- They sold reserve dollars in the public market to help the peso regain its value
- After this measure had sufficiently stimulated the economy, the Central Bank bought dollars in the local market and stocked them as reserves, building their foreign currency reserves back up.
Possible Solutions
- One possible solution to Argentina's Currency Crisis would have been "dollarizing" their economy. In this instance, a country replaces their current currency with the US dollar. This soltuion was one of the most promising alternatives to Argentina during this time, and many other countries in Latin America believed that this exact system could help their own economies. In addition to Argentina, El Salvaor and and Mexico considered dollarization, eventhough no country to date has officially taken part in converting their currency to the dollar. Many economists, including Alan Greenspan, believe that this would be a good idea, because the US dollar is the currently considered the most stable world currency. For Argentina, the attributes to using the dollar are numerous. In addition to reaping economic stability in the country, this action would also increase stability in the western region of the world, further strengthening the hemisphere and trade relations between the United States and Argentina. Alan Greenspan assures the United States that only positive attributes can flourish from a decision like this, because even if other countries choose to "dollarize," domestic interest rates in the United States would not change.
Many authors and economists continue to study the implications of the 1998 Argentine Currency Crisis today. In addition to dollarizing the economy, many of these scholars offer different solutions and corrections to ensure a more stable economy and country.
- Reform of law and judicial systems
- This presents a problem because the Argentine judicial system has a long history of crime and "turning-their-head" during times of crisis. Protests and riots broke out in numerous streets during the 1998 Currency Crisis, which sparked violence and even deaths. In this way...
The comeback
- GNP increased 8.8% in 2003
- 9.0% in 2004
- 9.1% in 2005
- Dec 2005 - foreign currency reserves were at $28,000 million. They also began to make debt payments back to the IMF.
- Exchange was stablilized at 3 pesos to the dollar or 33 cents per peso.
- Inflation decreased.
- The Argentinian government also reached a settlement with its creditors which granted them a considerable reduction in their debt.
