Sunday, October 21, 2007

Book on the currency board of Argentina

"Hyperinflation, currency board and bust- the case of Argentina"
book by Jutta Maute

This was the book I completed in the long flights from India to Argentina. It was like a thriller fiction.

Jutta Maute analyses in this book (published in 2006) , the Argentine experiment of the Currency Board System to rein in hyperinflation and stabilise the economy. According to the author, the currency board, an exchange rate-based stabilisation programme, is meant for buying short term stability against probable future instability. In the case of Argentina, while it achieved the twin objectives for a few years, it became unsustainable and contributed to the collapse of the economy in 2001. There was nothing wrong with the Currency Board as a short term solution. The Argentine government should have had an exit strategy and phased it out which they did not do and eventually paid a high price for the mistake.

Some of the facts highlighted in the book:

-in the period 1980-90 there were 11 finance ministers and 10 central bank governors. There were 40 finance ministers and 40 central bank governors in the period 1945-90. This is perhaps one of the main causes for the economic crises!

-the average inflation in the period 1980-89 was 750%. This was preceded by average inflation of 133% in 1970-79 period. It was 23% in 1960-69 and 30% in 1950-59. No wonder, the system burst in 2001. It was a tragedy waiting to happen.

- since 1820 Argentina had defaulted on its debt repayment five times. So, the default in 2001 was not new and the foreigners who lent money to Argentina did not read history.

- In the period july 89- dec 93, the government issued 12000 executive decrees and 308 " decrees of necessity and urgency". This exceeded the total no of decrees issued in the 130 years before. This means, the executive bypassed the legislative authorites so often by resorting to such rule by decree.

- In 2002, 56% people went below poverty line after the crisis.

The book is a clinical and objective anaysis and in the style of a research paper. Not surprising..the author is a German.

The case of creation of poverty from riches and chronic instabilty in Argentina lends itself as an interesting subject for research.

Argentina has impressed me in the last one week with its elegant buildings, stylish houses, numorous polo grounds and golf courses and world-class excellence in polo, golf, tennis, rugby and football. The country has been blessed with oil and gas, large area of fertile land, mineral and natural resources. All this.. for a small population of 40 million who speak one language, belong to one religion and one ethnic stock. Argentina was among the top ten richest countries around 1920.

The contradiction of Argentina is amazing even for an Indian used to the infinite contradictions of the large and diverse India.

1 comment:

Mauricio Santoro said...

Dear ambassador Viswanathan,

As Gunnar Myrdal once wrote, there are four types of countries: developed ones, developing ones, Japan and Argentina.

As a Brazilian PhD candidate finishing a dissertation on Argentina´s foreign policy, I like very much your blog and let me salute you for your new post in Buenos Aires, a city I learned to love when I lived there in 2006/2007.

I have a great respect for Indian diplomats and I am sure you do a terrific job as ambassador to Argentina.

I hope you find among the porteños the same hospitality, warm and friendship that I received.

Best regards and good luck,
Maurício