Number: RL31169
Title: Argentina: Economic Problems and Solutions
Authors: Gail Makinen, Government and Finance Division 
Abstract: For much of the post-World War II era, when the financial press focused on Argentina, it was to highlight bouts of very high inflation and failed stabilization efforts. Argentina again commands the attention of the financial press, but this time inflation is not the issue. Not only has Argentina had five years of stable prices, but over the past 2 years, the price level in Argentina has actually fallen. Thus, it is now speculated that Argentina may have to change its monetary regime not because of inflation, as had been perennially the case, but to combat falling income, rising unemployment and a possible default on its national debt. How did Argentina come to this end? In large measure it is the consequence of the method chosen to deal with the chronic tendency of Argentine public finance to produce inflation, To a lesser degree, it is due to the government's failure to recognize that the method chosen to control inflation also placed constraints on fiscal policy, and to two unavoidable economic shocks that reduced the price of Argentine exports and made Argentine products uncompetitive in Brazil, Argentina's largest trading partner.
Pages: 18
Date: Updated October 26, 2001