The Political Economy of Macroeconomic Policy Reform in Latin America
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The Political Economy of Macroeconomic Policy Reform in Latin America

The Distributive and Institutional Context

Eduardo Wiesner

Eduardo Wiesner’s book makes an important contribution to the understanding of development by blending together the interdependent issues of (i) macroeconomic performance and volatility, (ii) equity and distributive justice, (iii) fiscal deficits and the redistributive effectiveness of social public expenditures, and (iv) the demand for the ‘right’ institutions and for policy reform in Latin America. It does this by examining recent macroeconomic crises from a political economy perspective, and finds that information is the critical algorithm that links together the demand for macroeconomic stability, macroeconomic performance and, ultimately, distributive justice.
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Chapter 3: Argentina: Blinded by Hindsight – The Economics and Politics of Learning

Eduardo Wiesner


‘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 success. However, in that same year, in a clairvoyant article, Anna...

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