IPD AI

The Argentinian Debt

01/01/2008
Working Paper

This paper avers that the key to understanding the leadup to the Argentinian debt crisis was the particular anti-inflation and growth strategy—followed first in 1979–81 and in a more radical way in 1991–2001—of fixing the exchange rate, liberalizing the economy, and fully opening it to international financial flows.

The chapter shows that funds first rushed into Argentina to take advantage of high nominal interest rates in an inflationary environment, which also helped spur economic recovery. However, later the funds fled the country as confidence in the sustainability of growth and of the exchange rate regime dissipated owing both to real appreciation (domestic inflation, while slowing, still exceeded international rates) and to vulnerability to exogenous shocks in the context of a growing foreign debt burden.