The Political Economy of Macroeconomic Policy Reform in Latin America The Distributive and Institutional Context
The Distributive and Institutional Context
Chapter 3: Argentina: Blinded by Hindsight – The Economics and Politics of Learning
3. Argentina: blinded by hindsight – the economics and politics of learning ‘The rules!’ shouted Ralph. ‘You’re breaking the rules!’ ‘Who cares?’ Ralph summoned his wits. ‘Because the rules are the only thing we’ve got!’ William Golding (1954, p. 83) I. FROM SCYLLA TO CHARYBDIS A perennial quest and vexing dilemma of humanity has been the choice between rules, on the one hand, and discretion, on the other. Should choices be framed on rigid mandates or under discretionary ﬂexibility? Since the myth of Ulysses1 this pendulum has deﬁned the extremes within which diﬀerent social, political and individual choices have been pondered and made. At the beginning of 1991, and certainly not in an act of improvisation, Argentina chose the rule of a convertibility exchange rate arrangement as the anchor for its macroeconomic and ﬁscal policy. By doing so it was expressing its resignation to its capacity to judiciously exercise discretion and ﬂexibility in the management of its ﬁscal and public expenditure policies. For decades it had been plagued by bouts of populism2 and inﬂation.3 Finally it came to the conclusion that to terminate this self imposed destiny it had to adopt a convertibility rule. Success came almost instantly. Inﬂation dropped from the thousands to low hundreds in 1991 and growth rebounded to 10.5 per cent. In 1992 inﬂation fell further to 24.9 per cent and growth remained very strong at 9.6 per cent. The convertibility regime was broadly seen as a major...
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