Analyzing the argentinian economy and government
Argentina economic crisis
Alternatively, when monetary policy targets the exchange rate, inflation is low and stable, and nominal returns in domestic currency depend on the expectations of devaluations Eventually, when a BOP crisis unfolds there is a sharp devaluation that also makes the real exchange rate volatile Again, the average real returns are high and their volatility even higher. This deregulation implied that the interest rate was determined by a free market and there was free entry to the industry These reforms, together with the implementation of a deposit insurance guaranteed by the government, are key to understanding the development of government debt over the following decade, as we argue later on. After the battle of Pavon in , the civil war was finally ended and the country was unified. At the same time, a balance of payment crisis developed that led to a sharp devaluation of the domestic currency The exchange rate guarantee implied an additional burden for the government Starting in , the government was unable to comply with its debt obligations and unilaterally declared default This event forced the government out of the international capital market until , so fiscal imbalances had to be financed by either domestic credit or seniorage. Not by mistake, but by design. These developments are relevant to understanding the dynamics of total government debt, depicted in Figure 9. If the proposal is approved by the majority, the judge reviews the terms of the plan prior to approving it. If we let Dt be the government deficit in nominal terms, measured as expenditures and transfers minus taxes, Bt and Mt the stock of government debt and money, and Rt the nominal interest rate, then the budget constraint of the government can be written as: 10 The right hand side of the Equation represents the financial obligations of the government in the period, while the left hand side represents the two ways the government has to finance them, by either issuing interest bearing debt or non interest bearing debt money. We also use a simple model of the government budget constraint to account for the macroeconomic history of Argentina during that same period. The court will appoint a trustee. Debt as a share of GDP was small and consisted mainly of domestic debt. The second, which was very important for Argentina during that period, consists of real exchange rate movements between the peso and the dollar. Generally, there is in general an important accounting issue in the definition of fiscal deficit. The figure also makes clear that the default did not reduce the debt-to-GDP ratio, since the government issued large amounts of debt during the crisis In , the debt-to-GDP ratio begins to fall as a result of GDP growth, appreciation of the peso and the haircut of
Regarding debtors abroad, Argentine courts only have jurisdiction when debtors have assets in Argentina in which case insolvency proceedings will only involve such assets or when their principal place of business is in Argentina. Thus, the total amount of nominal money cannot be increased by the Central Bank, and any attempt to do so by increasing domestic credit will imply a reduction of the stock of international reserves.
Note that we treat interest payments separately in the budget constraint, so our definition of deficit does not involve interest payments Instead, it is simply the difference between current nominal expenditures and current nominal tax revenues.
Then, given our constructed data for inputs and the data for output used in Figure 1we use 2 to construct values for At, between and Two phenomena affect the evolution of the debt-to-GDP ratio.
Argentine economy collapse
In addition, volatility between and , the worst period in terms of growth, is very similar than between and We also use a simple model of the government budget constraint to account for the macroeconomic history of Argentina during that same period. One of them is to eliminate the loopholes of anti-trade and protectionist measures imposed from the short-sighted perception that protectionism would replace imports and strengthen the economy while printing money would spur growth. With such potential for growth and employment, it is worthwhile to be brave and put an end to the remnants of past wrong policies. The remarkable feature of the period, therefore, is the break in the trend of output per capita. In , the country experienced its worst hyperinflation in history. It also seems clear that the story has some quantitative problems: for instance, the deficits in and are similar to the ones in and and the inflation rate was five times higher. The dollar index has not moved much against its basket of currencies, therefore, it is the disastrous monetary policy that made the Peso plummet.
In May 25,a revolution in Buenos Aires ended the colonial government headed by the Spanish viceroy and the first local government was established. Similarly, we project backwards the employment data, using population growth rates.
It is possible that a government accumulates deficits over a long period of time such that it eventually and gradually reaches the limit That is indeed possible, but as we will show, it is not the whole story During periods in which the government is in default, the ability to issue new debt is quite limited.
Again, the inability to borrow is a key component of the theory.
Argentina economy 2019
It has followed the MMT recommendations for years. However, there is data starting in , so we use that data to calibrate the model in that year. In fact, the debt level in was slightly above the figure for These developments are relevant to understanding the dynamics of total government debt, depicted in Figure 9. Not by mistake, but by design. The rolling volatility exercise below supports, we believe, our choice of subperiods. But there is another possibility: A return to uncontrolled fiscal deficits and the well-known ghosts of the past: inflation, devaluation, defaults, zero-sum games and stagnation. We first decompose the data to isolate low frequency behavior and show that, with significant departures over some periods of time, income per capita grew, on average, at 1. In practice, out-of-court agreements provide a series of conditions that must be complied with, including a minimum threshold of consenting creditors. Reorganization Concurso preventivo is a reorganisation proceeding that can be initiated voluntarily by an individual or entity, who must submit proof of their inability to pay their debts. Remember that the simulation does not use data after , so this is really an out -of-sample exercise. Note that the prediction of the model is very good only until the mids. Macroeconomic and debt evolution The analysis of the paper covers roughly the period starting in the early s until the late s. Each crisis involved an enormous redistribution.
The natural interpretation of the curve is the percentage deviation of GDP relative to a 1. Nicolini"Recurrent hyperinflations and learning," American Economic Review 93 5 First was the deregulation of the financial sector.
But there are major differences. The BOP crisis version Sargent's story can also accommodate balance of payments crises when countries choose, as Argentina repeatedly did during this period, to fix the nominal exchange rate. The second period starts in and ends incorresponding to the period in which an import-substitution strategy was implemented in countries throughout Latin America, of which Argentina is one example The volatility for that period goes down to 0.
based on 88 review