Macroeconomic policy regimes and demand and growth regimes in emerging market economies: the case of Argentina
Juan Martín Ianni National University of Mar del Plata – Sociedad de Economía Crítica, Mar del Plata, Argentina juanmartinianni@gmail.com

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Demand and growth regimes (DGR) and macroeconomic policy regimes (MPR) frameworks have assumed prominence within the post-Keynesian literature. However, most studies based on these conceptual frameworks have focused on developed economies. The main contribution of this paper is to provide a post-Keynesian analysis of the DGR and MPR of an emerging capitalist economy, Argentina, in the period between 2002 and 2019. By providing a novel periodization of the Argentine macroeconomic development, the results show a more precise characterization of the latter, thus allowing a better understanding of economic policy and its results in terms of aggregate demand and growth. In particular, it is possible to observe the MPR and DGR transition between 2002 and 2015, as well as an abrupt change after 2016.

Abstract

Demand and growth regimes (DGR) and macroeconomic policy regimes (MPR) frameworks have assumed prominence within the post-Keynesian literature. However, most studies based on these conceptual frameworks have focused on developed economies. The main contribution of this paper is to provide a post-Keynesian analysis of the DGR and MPR of an emerging capitalist economy, Argentina, in the period between 2002 and 2019. By providing a novel periodization of the Argentine macroeconomic development, the results show a more precise characterization of the latter, thus allowing a better understanding of economic policy and its results in terms of aggregate demand and growth. In particular, it is possible to observe the MPR and DGR transition between 2002 and 2015, as well as an abrupt change after 2016.

1 INTRODUCTION

Demand and growth regimes (DGR) (Hein 2012; Hein et al. 2021) and macroeconomic policy regimes (MPR) (Hein/Martschin 2021; Herr/Priewe 2005) frameworks have assumed prominence within the post-Keynesian literature. While the former is useful to understand the main demand and financing sources, the latter allows us to map the influence of the macroeconomic policy-mix on the prevailing demand and growth regime. However, the majority of studies based on these conceptual frameworks have focused on developed economies.

Therefore, the main contribution of this paper is to provide a post-Keynesian analysis of the DGR and MPR of an emerging capitalist economy, Argentina, in the period between 2002 and 2019. For its part, Argentina has just experienced a ‘lost decade’ in economic terms (Valdecantos 2020): after its good performance in the 2000s, Argentina’s GDP growth has lagged (compared to world’s growth) and its per capita GDP has stagnated since 2010. In this sense, both the DGR and MPR frameworks can shed light on this phenomenon. However, to do so, the latter must take into account certain particularities related to peripheral and emerging economies (Kazandziska 2015).

Some scholars have already analysed the DGR for Argentina (Akcay et al. 2021). However, our work provides a novel periodization that allows to integrate the changes in Argentina’s MPR in a straightforward way. Since the latter has frequently changed in the last two decades, we will analyze shorter periods linked with these changes. Several scholars have already studied Argentina’s recent macroeconomic policies (Amico 2020; Damill et al. 2015; Valdecantos 2020), however, this work will adopt the (adapted) post-Keynesian MPR framework for the Argentinian case and relate it to the prevailing DGR.

The remainder of this paper is structured as follows. In Section 2, the theoretical framework building mainly on post-Keynesian theory is presented. This provides the conceptual toolkit to characterize Argentina’s DGR and MPR, the key topic of Section 3. Section 3 is divided into two subsections, one focusing on the long-term view and the second on a more detailed periodization adapted to the changes in macroeconomic policies. Finally, in Section 4, some concluding remarks are provided.

2 THEORETICAL FRAMEWORK

The theoretical framework of this work is based on two post-Keynesian conceptual devices. Section 2.1 presents the DGR theoretical framework, while Section 2.2 describes the MPR concept, both its core elements as well as its adaptation to study peripheral economies.

2.1 Demand and growth regimes

In the context of finance-dominated capitalism, that is, the increasing role of financial motives, markets, actors and institutions in the operation of the economy (Epstein 2005), different DGRs have emerged (Hein 2012). In particular, financialization has affected distribution (rising gross profit shares and the inequality between wage earners), decreased real investment in capital stock (due to short-termism on management and the reduction of internal means of finance for real investment), enhanced wealth-based and debt-financed consumption (by changing financial norms and creating new financial instruments) and raised current account imbalances (by liberalizing capital markets and accounts) (Hein et al. 2021). These changes have affected each economy differently.

Consequently, in the context of a general trend towards financialization with ‘variegated’ results (Karwowski et al. 2020), specific DGRs emerged. The latter have been analyzed for developed (Hein 2012; Hein/Martschin 2021; van Treeck et al. 2007) and emerging countries (Akcay et al. 2021; Jungmann 2021). These DGRs have been analyzed by applying two sets of variables from national income and financial accounting, and this procedure is followed here. Firstly, growth contributions of the main demand components are analyzed. This means the growth contributions of private and public consumption and investment (domestic demand) and exports and imports (net exports), which sum up to real GDP growth of a given economy. Secondly, financial balances of the private, government and external sectors are studied, as a means of understanding how demand is financed and if potential instabilities and fragilities are arising (Hein et al. 2021). In sum, these two methods shed light on: (i) a country’s main demand and growth sources; and (ii) how demand is financed (Hein et al. 2021). These indicators define an economy’s DGR, which can be export-led mercantilist, weakly export-led, domestic demand-led or debt-led private demand (boom) (Hein 2012). Table 1 summarizes how the DGRs are operationalized in this paper, following Hein et al. (2021).

Table 1

Classification of demand and growth regimes under financialization

Table 1
Source: Hein et al. (2021: 1204).

It should be highlighted that different analytical levels must not be confused when applying the DGR methodology (Hein 2023). A given DGR, for example, a domestic demand-led regime, describes the composition of aggregate demand and how it is financed, but that does not imply a particular public policy. If then the causes or the drivers of such DGR are to be studied, several lenses can be applied. In this work, public policies are studied using the MPR framework, which is developed in the following sub-section.

2.2 Macroeconomic policy regimes

2.2.1 Core elements

In the post-Keynesian literature, the concept of MPR has assumed prominence as a theoretical device for evaluating differences in macroeconomic dynamics for different countries or regions (Hein/Martschin 2021). Based on a comprehensive and coherent analysis on economic policy, post-Keynesians have developed a full macroeconomic policy mix (Arestis 2013; Hein/Stockhammer 2010) as an alternative to orthodox proposals, in particular, New Consensus Macroeconomics1 (Carlin/Soskice 2009). In this sense, an MPR describes a set of fiscal, monetary and wage/income policies, as well as their coordination and interaction against the background of open economy conditions (mainly exchange rate regime and degree of economic openness).

The core of a post-Keynesian MPR is fiscal policy, as it is responsible for: (i) the stabilization of economic activity (at a non-inflationary level of full employment), and (ii) a more equal disposable income distribution, both in the short and long run (Hein/Martschin 2021).2 Equation (1) presents an accounting identity, where D represents the public deficit, G equals public expenditure, T is public ‘income’ (in the form of taxes), S refers to private saving, I is private investment, X refers to exports and M to imports. Therefore, to sustain a specific level of economic activity (and thus employment), the public deficit (D) takes up the excess of saving over investment (S I) of the private sector. The level of public deficit would be higher if the current account were in deficit, too, and less if the current account recorded a surplus (Arestis 2013; Hein/Martschin 2021).

D=GT=SI(XM)

To achieve output and employment targets, fiscal policy must counteract aggregate demand shocks. For this purpose, post-Keynesians argue for counter-cyclical policies. Following Hein/Martschin’s (2021) notation, such requirement can be expressed as in equation (2):

D=DL+DS(YTY)

where DL represents the government fiscal balance position (either surplus or deficit) required for achieving the targeted level of non-inflationary full employment economic activity in the long run (YT). For its part, DS symbolizes a short-run fiscal policy reaction, which corrects for short-run aggregate demand shocks that deviate output (Y) from the target level. Fiscal policy should also focus on progressive taxation and redistributive social policies to decrease the excess of private saving over private investment and to improve automatic stabilisers (Hein/Martschin 2021).

As argued by Domar (1944), sustained public deficits do not necessarily lead to unsustainable public debt–nominal GDP ratios. As also shown by several recent scholars (Freitas/Christianes 2020; Hein/Woodgate 2021), this is even less of a problem if fiscal and monetary policies are coordinated, such that the long-term nominal interest rate (i) is lower than nominal GDP growth (Y^) (Fullwiler 2020). This condition makes sure that governments do not have to run primary surpluses to sustain a certain government debt–GDP ratio. Moreover, it is recommended that the interest rate is slightly above the rate of inflation (p^) (Hein/Martschin 2021), as expressed in equation (3). This allows for real financial wealth to be protected against inflation while redistribution of income favour the productive sector.

p^iY^

Besides being the supporting pillar for long-run fiscal policy (Cassetti 2017), monetary policy in the post-Keynesian policy mix plays additional roles. In particular, the central bank should contribute to the stability of the financial system and act as a ‘lender of last resort’ during crises (Rochon/Rossi 2007). Furthermore, regulating and channelling credit, setting reserve requirements and implementing other forms of monetary regulations are key tasks for monetary policy in the post-Keynesian view (Hein/Martschin 2021).

Wage policies are in charge of nominal stability (i.e. stable inflation) and stable income distribution. For this purpose, as a guide, nominal wages growth (w^) should be similar to the sum of the targeted inflation rate (pt) and trend labour productivity growth (y^) (as expressed in equation (4)), which means that trend growth of unit labour costs is equal to target inflation (Hein/Martschin 2021). If actual inflation is below the target, then the labour income share will increase and aggregate demand and employment will rise (if the economy is wage-led).

w^=y^+Δpt

Post-Keynesians have also incorporated the international dimension to the MPR analysis. When studying current account imbalances, Thirlwall’s law (1979) suggests that price elasticities might be less important than income elasticities of exports and imports. Consequently, similar to ‘parking it’ monetary policies (Rochon/Setterfield 2008), the nominal exchange rate should be stabilized instead of treating it as tool for short-run adjustments. However, this task is not simple, especially since there is an ongoing debate between scholars regarding the determinants of the nominal exchange rate (Lavoie 2022: 523).

On the one hand, Monetary Keynesians have presented a theory that relates long-term interest rates (domestic and international), currency risk and relative currency premium with the exchange rate (De Paula et al. 2017; Herr/Priewe 2005). The currency premium indicates the asset-protecting property of a given currency, which determines its position in the international currency hierarchy. Therefore, countries with a higher currency premium and lower currency risk have lower long-term equilibrium interest rates. Otherwise, the central bank is firmly constrained to control domestic interest rates.

On the other hand, even though post-Keynesians such as Lavoie (2000; 2022: 525) and Arestis (2013) recognize that exchange rates may be related to international interest rate differentials, they argue that the causality runs from the latter to the former (through its effect on future and spot exchange rate differentials). Consequently, central banks can control the domestic interest rate, but they are limited by the effect of the latter on capital flows and thus on the exchange rate. Therefore, capital controls are recommended to the stabilisation of exchange rates, as in the Monetary Keynesian approach (Harvey 2019).

Both approaches highlight potential constraints for central banks to set domestic interest rates below nominal GDP growth, given potential instability in exchange rates. As means of overcoming these constraints, post-Keynesians recommend raising non-price competitiveness (Arestis 2013). This would allow countries to increase the balance-of-payments–constrained growth rate by improving the income elasticity of exports and decreasing it for imports (Thirlwall 1979). For this purpose, active industrial policies are recommended, as well as public investment in infrastructure and R&D (Arestis 2013).

2.2.2 Adapting the framework to peripheral economies

External or foreign policy is at the core of the MPR debate in peripheral economies. Herr/Priewe (2005) highlight the structural tendency of non-core countries to run into current account deficits as the key factor for underdevelopment, in line with the balance-of-payments–constrained growth literature (Médici/Panigo 2015; Thirlwall 1979) and the centre–periphery framework (Pérez Caldentey/Vernengo 2016). However, they slightly depart from this literature, focusing on how sustained current account deficits translate into increasing debt in foreign currency and the risks of debt and exchange rate crises, leading to capital flight, inflation and banking crises. What is more, every round of external crisis leads to a systematic reduction of the quality of the domestic currency, and thus an increasing likelihood of dollarization (Herr/Priewe 2005). Therefore, a successful MPR in peripheral economies must aim to reduce current account deficits, thus avoiding the ‘original sin’ (Eichengreen/Hausmann, 1999).

As means of achieving this, Herr/Priewe (2005) argue for a stable but competitive exchange rate, which could enhance exports. As a result, the currency premium can increase, allowing for the domestic interest rate to be lower, as well as reducing recurrent depreciations and their consequences (Herr/Priewe 2005). For this strategy to succeed, the authors highlight the importance of income policies as nominal stabilizers (as argued in the core MPR framework), which contribute to exchange-rate stability, and policies to increase non-price competitiveness. Consequently, they assess that an export-led DGR should be pursued, since it is more robust for developing countries. However, once growth accelerates, gross capital inflows are likely to take place, which may deteriorate the external surplus through the appreciation of the exchange rate. To address this issue, Herr/Priewe (2005) argue for capital controls and the accumulation of international reserves.

Kazandziska (2015) agrees with Herr/Priewe (2005) regarding the avoidance of foreign debt, however, she argues that the main tool to reduce current account deficits is industrial policy, by favouring high-value added industries, in line with Thirlwall’s (1979) recommendations (and as argued by other post-Keynesians previously mentioned). The latter aims at changing the production structure of the economy, that is, developing the manufacturing sector, and improving non-price competitiveness (Thirlwall 2011). Kazandziska (2015) thus also departs from the ‘new developmental’ view (Bresser-Pereira 2016), which relies on the positive relationship between competitive (depreciated) exchange rates and growth. The main reason to reject this causal link is that a currency depreciation may improve the current account position of a peripheral economy, but it does so by contracting real wages and increasing the profit share, thus decreasing investment and GDP in a wage-led economy (Hein 2014: 287), as well as slashing imports rather than enhancing exports (Amico/Fiorito 2017; Medeiros 2020).

For the specific case of Latin America (and particularly Argentina), due to the particularities of its export basket (commodity goods), several scholars have shown that export growth is rather related to its trade partners growth than to exchange rate variations (Prebisch 2012 [1949]; Berrettoni/Castresana 2009). For this reason, it is key to incorporate the international context in the analysis. In this sense, Medeiros (2008) argues that it was not the depreciation of the real exchange rate, but rather external forces (China’s growth, more lax monetary policy of core economies) which allowed Latin American economies to achieve current account surpluses in the 2000s. In other words, even if a depreciation would have a small positive effect on exports, it would be overcompensated by its contractionary effect on GDP (Amico/Fiorito 2017).3

In sum, in line with the theoretical link of a depreciation in a wage-led economy, and as shown by several studies (Díaz Alejandro 1963; Hirschman 1949; Krugman/Taylor 1978), depreciations have an overall contractionary effect on the economy. An appreciation of the exchange rate could have the opposite effect, allowing the increase in real wages, investment (by an increase in wages and by lowering the prices of imports for capital goods) and thus growth. However, with given income and price elasticities of exports and imports, a sustained growth process with domestic growth exceeding the growth rates of the trading partners will inevitably face a balance-of-payments constraint (Amico/Fiorito 2017).

Since severe exchange rate fluctuations may hamper growth, the stability of the exchange rate in peripheral economies is key. As already argued, exchange rates are strongly influenced by capital flows, in particular short-term capital flows (Andrade/Prates 2013, Harvey 2019). This is particularly true for emerging economies because they are at the bottom of the currency hierarchy and have a low currency premium. Furthermore, the demand for their currency is rather speculative/short-term (Prates 2020). In periods of low risk in international financial markets, massive short-term financial flows enter developing countries looking for speculative-profitable opportunities (Kaltenbrunner/Painceira 2015). These flows are unrelated to an economy’s fundamentals (Andrade/Prates 2013; Ramos 2019) and may appreciate the currency, enhance growth and thus create their own ‘demand’ in the form of higher current account deficits (Medeiros 2008). Once capital flows reverse, this process often leads to strong depreciations.4 Therefore, the increasing relevance of financial flows and their destabilizing effects on the exchange rate requires the implementation of capital controls (Bortz 2018),5 with the focus not only on the magnitude, but also on the nature of these flows (Broner et al. 2013; Kaltenbrunner/Painceira 2015).

Monetary policy may contribute to the stability of the exchange rate (Kazandziska 2015) through the effect of interest rates differentials on capital flows, as argued in the core post-Keynesian MPR (Amico/Fiorito 2017; Lavoie 2000). However, as post-Keynesians argue, monetary policy is in charge of two other key tasks: the stability of the financial system and low long-term interest rate, which are already accounted for in the core MPR framework. These objectives might be contradictory, given the place of peripheral currencies in the international hierarchy. Higher domestic interest rates may be necessary to compensate for a lower currency premium, and a lower bound on the policy interest rate might become an obstacle to expansionary monetary policies (Akcay et al. 2021).6 This ‘dilemma’ is an additional argument for the implementation of capital controls, since ‘independent monetary policies are possible if and only if the capital account is managed’ (Rey 2015: 3). Lastly, fiscal7 and wage policies should be in line with the core post-Keynesian MPR, that is, stabilizing economic activity (and decreasing income inequality) and nominal stabilization, respectively. Moreover, contrary to the ‘new developmental’ theory, it is fiscal policy rather than exchange rate policy that should manage aggregate demand (Dvoskin et al. 2020).

3 DEMAND AND GROWTH REGIMES AND MACROECONOMIC POLICY REGIMES: THE ARGENTINIAN CASE

Argentina’s DGR and MPR are analyzed for the period spanning 2002–2019, using the theoretical frameworks presented in the previous section. In the first part, the empirical analysis uses a periodization prevailing in previous literature, which is based on trade cycles, which we call the ‘long-term view’. In the second part, a novel and more detailed periodization is proposed. The latter is motivated by multiple and drastic policy changes, which presumably affect MPR and therefore DGR.

3.1 A long-term view

For the long-term view, we focus on the trade cycles in Argentina between 2002 and 2019. Based on the evolution of growth, unemployment, inflation and the current account balance (Figures 1 and 2), it is possible to clearly identify two cycles: 1993–2001 and 2002–2009, in line with the results by Pérez et al. (2013). Moreover, from 2010 onwards, even if the current account balance seems to indicate a clear-cut trade cycle until 2019, domestic variables (especially erratic real economic growth and increasing inflation) are less clear cut.

Figure 1
Figure 1

Argentina’s unemployment, inflation and growth: 1991–2021

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Source: author’s own elaboration based on ECLAC (2022).
Figure 2
Figure 2

Argentina’s current account and terms of trade index: 1991–2021

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Notes: CA: Current Account; ToT: Terms of Trade.Sources: Author’s own elaboration based on BCRA (2022b) and INDEC (2022).

Nonetheless, a long-term analysis would indicate two periods for the analysis of Argentina’s macroeconomy between 2002 and 2019: 2002–2009 and 2010–2019. This is very similar to the periodization used in previous studies (Akcay et al. 2021). Following the procedure described in Section 2.1, the DGRs are summarized in Table 2, showing average values for the two trade cycles.

Table 2

Key macroeconomic variables, average values for periods 2002–2009, 2010–2019

Table 2
Notes: ELM: export-led mercantilist; DDL: domestic demand-led. Sources: Author’s calculations based on BCRA (2022a, 2022b); IMF (2022) and ECLAC (2022).

Between 2002 and 2009, Argentina was characterized by an export-led mercantilist regime, in which negative financial balances of the external sector (thus, current account surpluses) and positive growth contributions of net exports prevail. The external sector deficit was mirrored by both private and public sector financial surpluses. This regime was associated with an average of almost 4 per cent annual GDP growth.

Between 2010 and 2019, Argentina experienced a domestic demand-led regime. Financial balances of the external sector were positive (i.e. a current account deficit). The counterpart of the latter was negative financial balances of the public sector (fiscal deficit) and a surplus in the financial balance of the private sector. Growth strongly decelerated compared to the previous period, with negative growth contributions of net exports.

Following the framework presented in Sections 2.2 and 2.3, the MPR is vital to understanding the change in the DGR. For monetary policy, we assume that the Central Bank of Argentina controls the short-term nominal interest rate and targets a specific short-term real interest rate. For assessing wage/income policy effects, Argentina’s aggregate demand is considered as wage-led. While some literature find that Argentina is a wage-led economy (Amitrano 2017; Bortz 2019; Pérez et al. 2013), others arrive at opposite results (López/Noguera 2020; Onaran/Galanis, 2014). This work follows the first strand of literature, following Chena et al.’s (2018) arguments regarding Argentina’s low price elasticity of exports and high dependence on imported capital goods.

For fiscal policy, we examine the evolution of the cyclically adjusted budget balance (as a percentage of potential GDP) and the output gap. If they move in the same direction, then fiscal policy can be considered as counter-cyclical (e.g. decreasing structural deficits or increasing structural surpluses in an economic upswing). On the contrary, if they move in opposite directions, then fiscal policy is pro-cyclical. Lastly, we consider the international context. This includes the multilateral real exchange rate, the economic complexity index (a proxy for non-price competitiveness) and the degree of openness measured by export and import shares of GDP.

Following the 2002–2009 and 2010–2019 periodization, two different MPRs are clearly visible (summarized in Table 3). In the first period, after the 2001 economic crisis in Argentina, the peso devaluated in 2002, remaining stable for the rest of this period. Complementary to this increase in price competitiveness, Argentina’s non-price competitiveness also grew. Additionally, the beginning of a new external cycle provided a favourable international context (slowly increasing terms of trade and high growth of Argentina’s trade partners), which contributed to the increase in exports. The large devaluation in 2002 contributed to the sharp contraction of the wage share in that year. However, the wage share managed to recover and even overcome pre-crisis values. Monetary policy followed an expansionary strategy with negative real short-term interest rates. However, the proxy of the real long-term interest rate was always higher than real GDP growth, thus hindering investment in capital stock. Moreover, capital controls were strengthened and sustained from 2003 onwards. Finally, fiscal policy was mainly pro-cyclical (five years out of eight), with three years with an expansionary stance (2005, 2006 and 2007). Moreover, a low but increasing public investment–GDP ratio contributed to increasing aggregate demand and growth.

Table 3

Indicators for the macroeconomic policy regimes in Argentina, average annual values for the periods 2002–2009 and 2010–2019

Table 3
Notes: MRER: Multilateral real exchange rate. Positive values account for depreciation. * Argentina’s long-term real interest rate is calculated as the interest rate of US Treasury Bonds with 10 years maturity plus Argentina’s risk premium measured by the EMBI_AR, considering Argentina’s inflation. ** Capital controls are measured through the Chinn–Ito index, which takes on higher values the more open the country is to cross-border capital transactions. Sources: Author’s own elaboration based on BCRA (2022a, 2022b); CEP (2022); IMF (2022), ECLAC (2022); Kennedy et al. (2018); Baumann et al. (2018); JP Morgan (2022); Observatory of Economic Complexity (2022).

This MPR contributed to Argentina’s export-led mercantilist regime between 2002 and 2009. A first key factor was the real devaluation, which contributed to the correction of the previous current account deficit. However, rather than boosting exports (driven by a dynamic international context), the latter mostly slashed imports (mainly through decreasing the wage share). High growth in nominal unit labour costs then led to a recovery of the wage share.8 Monetary policy accompanied this process with positive long-term real interest rate–GDP ratios. Lastly, pro-cyclical and expansionary fiscal policy helped to stabilize domestic demand after the crisis and increase public investment, as well as enhancing private investment through crowding-in effects.

The second period shows a radically different MPR. Monetary policy moved towards an expansionary stance. Non-price competitiveness stagnated, while price competitiveness decreased because of the exchange rate appreciation. Nominal unit labour costs grew more rapidly than in the previous period, and so did inflation. The wage share remained stable. Finally, fiscal policy was pro-cyclical in the whole period, being contractionary and expansionary for five years in each case. Public investment as a percentage of GDP did not rise.

Exchange, monetary and fiscal policies played an important role in the transition to a domestic demand-led regime. However, this MPR did not manage to achieve the high growth rates of the previous period. A possible explanation is the combination of stagnant public investment as a percentage of GDP, which may have impacted growth contributions of investment, and the negative impact of strong devaluations (2014, 2018 and 2019) and increasing inflation on real wages (associated with lower contributions of private consumption). Moreover, this MPR contributed to a deterioration of the current account (Figure 2).

The analysis of the DGR and the MPR in both periods in Argentina does not consider changes within them. First, there are authors who point out the diversity of macroeconomic configurations in the 2002–2009 period (Damill et al. 2015; Kulfas 2019). Second, the 2010–2019 period combines two governments with radically different political intentions and applied economic policies (Amico 2020; Chena et al. 2018; Panigo et al. 2019). Therefore, a broad periodization can be helpful, but it might hide more than it shows. We will thus provide a more short-run examination in the next sub-section.

3.2 Zooming-in

We will now replicate the DGR and MPR analysis but with an alternative periodization, which allows us to grasp more clearly several policy changes that took place between 2002 and 2019, in particular. The first period begins after the economic crisis of 2001 and ends with the resignation of Roberto Lavagna as Minister of Economy in 2005, which marked the end of a ‘mercantilist’ economic model in Argentina (Chena et al. 2018). Then the second period begins, culminating in two events. At the domestic level, the period is shaped by the conflict with the agricultural employers and the implications of the legislative elections of 2009, and at the international level, with the impact of the Global Financial Crisis (GFC) on Argentina. This crisis indicated the beginning of the third period, which culminated in the victory of Mauricio Macri in the presidential elections and the resounding change in economic policy in 2015. The last period includes Macri’s administration, which lasted until 2019. Following the procedure described in Section 2.1, the DGRs for Argentina between 2002 and 2019 are shown in Table 4.

Table 4

Key macroeconomic variables, average values for periods 2002–2005, 2006–2009, 2010–2015 and 2016–2019

Table 4
Notes: ELM: export-led mercantilist; WEL: weakly export-led; DDL: domestic demand-led. Sources: Author’s calculations based on BCRA (2022a), IMF (2022) and ECLAC (2022).

Between 2002 and 2005, Argentina was characterized by an export-led mercantilist regime, in which negative financial balances of the external sector (current account surpluses) prevailed (see also Figure 3). This deficit was the complement of both private and public sector financial surpluses. This regime was associated with an annual average of almost 4 per cent GDP growth, the highest of all periods.

Figure 3
Figure 3

Argentina’s financial balances: 2002–2019

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Sources: Author’s calculations based on BCRA (2022a), IMF (2022) and ECLAC (2022).

In the 2006–2009 period, Argentina shifted towards a weakly export-led regime. Although negative financial balances of the external sector were still in place (i.e. the current account was in surplus), net exports ceased to contribute to growth. Growth remained high due to the contribution of domestic demand (see also Figure 4).

Figure 4
Figure 4

Argentina’s growth contributions: 2002–2019

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Sources: Author’s calculations based on BCRA (2022a), IMF (2022) and ECLAC (2022).

The culmination of this trend is the domestic demand-led regime between 2010 and 2015. In this period, domestic demand still boosted growth, but contrary to the previous period, financial balances of the external sector were, for the first time since the 2001 crisis, positive (i.e. the current account was in deficit). The counterpart of the latter is the negative financial balances of the public sector and the surplus in the financial balances of the private sector. Although not substantially, growth decelerated in this period compared to the previous ones.

Between 2016 and 2019, a reversion of the previous process took place, returning the Argentinian DGR to a weakly export-led regime. It should be highlighted that this regime was consolidated after the strong devaluation of the Argentinian peso in 2018. Before this, negative growth contributions of net exports and decreasing net exports as a percentage of GDP, as well as negative or close to zero financial balances of the private sector, suggest a debt-led private demand boom regime.

There are several differences in this DGR compared to the 2006–2009 regime, although they are both weakly export-led. The dynamic of the 2016–2019 regime was associated with an improvement (after the 2018 devaluation) of the financial balances of the external sector, on the one hand, and net exports, on the other hand, which was the opposite of the 2006–2009 period. Between 2016 and 2019, on average, net exports were the only demand component contributing to growth of GDP.

This alternative periodization is associated with changes in Argentina’s MPR, as summarized in Table 5. The 2002–2005 MPR is characterized by the huge depreciation of the Argentinian peso in 2002, which then remained stable. While this provided a gain in price competitiveness, Argentina’s non-price competitiveness was low. Nevertheless, the beginning of a new external cycle provided a favourable international context, in particular, slowly increasing terms of trade and Argentina’s trade partners’ high growth, which contributed to the increase in exports.

As already explained, the high depreciation in 2002 contributed to the sharp contraction of the wage share in 2002. Although the wage share increased in 2004 and 2005, it did not reach its pre-devaluation values. Monetary policy achieved negative short-term real interest rates, although with a high long-term real interest rate–GDP differential, caused by the external debt default in 2001. Moreover, capital controls were strengthened and sustained from 2003 onwards. Fiscal policy was balanced between counter-cyclical (2003 and 2004) and pro-cyclical (2002 and 2005) stances, the latter being expansionary in 2002 and contractionary in 2005. Finally, a low but increasing public investment–GDP ratio was associated with higher growth.

Table 5

Indicators for the macroeconomic policy regimes in Argentina, average annual values for periods 2002–2005, 200–2009, 2010–2015, 2016–2019

Table 5
Notes: MRER: Multilateral real exchange rate. Positive values account for depreciation. *Argentina’s long-term interest rate is calculated as the interest rate of US Treasury Bonds with 10 years maturity plus Argentina’s risk premium measured by the EMBI_AR, considering Argentina’s inflation. **Capital controls are measured through the Chinn–Ito index, which takes on higher values the more open the country is to cross-border capital transactions. Sources: Author’s own elaboration based on BCRA (2022a), CEP (2022), IMF (2022), ECLAC (2022), Kennedy et al. (2018), Baumann et al. (2018), JP Morgan (2022) and Observatory of Economic Complexity (2022).

Overall, Argentina’s MPR between 2002 and 2005 contributed to its export-led mercantilist regime in this period. A first key factor in this process is the real devaluation, which corrected the current account deficit, mostly through slashing imports (Figure 5). This raised the growth contribution of net exports and net exports as a percentage of GDP.

Figure 5
Figure 5

Argentina’s total exports and imports: 2000–2019

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Source: Author’s own elaboration based on ECLAC (2022).

Monetary policy accompanied this process with a contractionary stance in the form of a high long-term real interest rate–real GDP growth differential. Complementarily, fiscal policy was balanced between pro- and counter-cyclical positions, which stabilized domestic demand and increased public investment, as well as enhancing private investment through crowding-in effects. This was associated with a quick recovery of the Argentinian economy in the aftermath of the debt crisis in 2001.

In the second period (2006–2009), the MPR radically changed. The real multilateral exchange rate appreciated and non-price competitiveness increased, contrary to the previous period. Capital controls were tightened. Unit labour costs grew more than inflation, fuelling the latter. This contributed to negative real interest rates and real exchange rate appreciation. Moreover, it was associated with an increase in the wage share, which reached its 2001 levels. Finally, fiscal policy was pro-cyclical and expansionary almost the whole period, except from the year of the GFC. Public investment as a share of GDP increased, which contributed to enhancing aggregate demand and growth.

The change in Argentina’s MPR contributed to the transition from an export-led mercantilist regime to a weakly export-led demand regime. A pro-cyclical and expansionary fiscal policy was a large contributor to the growth process through enhancing domestic demand. However, this caused a deterioration of the public financial balances, which became negative in 2009. The increase in the wage share also contributed to boosting domestic demand, which compensated for the decrease in net exports as a source of aggregate demand and growth (Figure 4).

The decline in net exports is explained mainly by the constant increase in imports (associated with a growing economy), without a similar growth in exports, despite a relatively good international context with trade partners still growing at a fast pace and good terms of trade, at least until the GFC (Figure 6). This reduced the current account surplus of Argentina in the period under analysis. Although not an immediate problem, this trend became problematic in the next period.

Figure 6
Figure 6

Average real GDP growth rates of Argentina’s top three trade partners

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Source: author’s own elaboration based on IMF (2022).

Despite this trend, and in the context of the GFC, Argentina managed to sustain a stable exchange rate and avoid losing large international reserves (Figure 7), which was instrumental in sustaining economic growth. Capital controls played a vital role in stabilizing the exchange rate and preserving international reserves during this period.

Figure 7
Figure 7

Argentina’s gross international reserves: 2002–2019

Citation: European Journal of Economics and Economic Policies: Intervention 21, 1; 10.4337/ejeep.2023.0113

Source: Author’s own elaboration based on BCRA (2022a).

The 2010–2015 MPR did not significantly shift away from its predecessor. The Argentinian peso continued to appreciate, and non-price competitiveness increased compared to the previous period. The short-term real interest rate and the long-term interest rate–GDP differential remained negative, and capital controls were tightened. Wage policy again failed to act as nominal stabilizer, leading at the same time to higher inflation and a growing wage share. Fiscal policy was pro-cyclical the whole period and expansionary almost every year (except in 2012 and 2014). However, public investment decreased after 2009 and never returned to pre-GFC levels.

This MPR completed the transition started in 2006 from an export-led mercantilist to a domestic demand-led regime. Between 2010 and 2015, domestic demand continued to play a key role as a source of growth, although the latter decelerated. Expansionary fiscal policy and rising wage shares were key in this sense. For the latter, a stable and appreciating exchange rate was instrumental. Moreover, even if public investment was not able to sustain its pre-GFC values, growth contributions of investment were higher than in the 2006–2009 period. In line with the tendency of the previous period, net exports had a negative contribution to GDP growth, and net exports as a percentage of GDP were virtually zero. The evolution of net exports undermined the sustainability of the process, which is reflected in the huge loss of international reserves (Figure 7). For the first time since 2003, the current account moved into deficit. An additional threat to the MPR stability was the public sectoral financial balances. With negative net exports, the price to pay to sustain domestic demand (and thus growth) was the further deterioration of the fiscal balance.

The fourth period (2016–2019) was marked by the arrival of a new government into office, which introduced a radical change in the MPR. On the external front, the exchange rate depreciated and non-price competitiveness deteriorated. Capital controls were lifted but the monetary policy stance remained expansionary. Wage policies were disinflationary on average in the period, and wages grew more than inflation and productivity gains only in 2017, the year of legislative elections. Unit labour costs increased less than inflation in the whole period and the wage share decreased. Finally, fiscal policy continued to be mostly pro-cyclical, but in contrast to previous periods, it was contractionary almost every year (except in 2017). Public investment followed this dynamic, decreasing steadily until 2018 and then sharply in 2019.

This restrictive MPR shifted the Argentinian economy back to a weakly export-led regime. However, contrary to 2006–2009, the 2016–2019 regime was unable to achieve growth. Contractionary fiscal policy, a huge depreciation between 2018 and 2019 (which led to the biggest loan agreement of the history of the IMF) and the decrease in the wage share were associated with lower aggregate demand and growth. The only year in which aggregate demand and growth were positive was in 2017, when expansionary fiscal policies were in place. Given the GDP contraction in this period, the increase in net exports on average, but especially from 2018 onwards, were mostly associated (as in 2002–2005) with a decline in imports (see Figure 5). Contrary to the ‘new developmental’ theory, the depreciation did not manage to boost exports and investment, but rather ‘solved’ the external constraint through its contractionary effect on the economy (slashing imports).

On the financial level, pro-cyclical contractionary fiscal policy failed to improve the fiscal deficit and even increased it in 2016 and 2017. Moreover, until the 2018 depreciation, given lower price and non-price competitiveness and less dynamic trade partners, the current account deficit rose. The latter was financed by a huge inflow of capital. For the first time since 2005, the private sector financial balances were negative in 2017 and 2018. However, the deprecation in 2018 corrected this trend, leading back the current account and private financial balances to positive values.

The changes in both the MPR and the DGR during the period under analysis are summarized in Table 6.

Table 6

Macroeconomic policy and demand and growth regimes in Argentina, for the periods 2002–2005, 2006–2009, 2010–2015 and 2016–2019

Table 6

Notes: DLPD: Debt-led private demand boom, DDL: Domestic demand-led, ELM: Export-led mercantilist, WEL: Weakly export-led.

+: expansionary stance, −: contractionary stance, 0: neutral stance.

Open economy conditions:

+: real appreciation, with high non-price competitiveness (complexity index).

−: real depreciation, with low non-price competitiveness (complexity index).

−/+: real depreciation, with high non-price competitiveness (complexity index).

+/−: real appreciation, with low non-price competitiveness (complexity index).

+/NA: real appreciation, with no data regarding non-price competitiveness (complexity index).

Monetary policy:

+: negative long-term interest rate-GDP ratio and strong capital controls.

−/+: positive long-term interest rate-GDP ratio and strong capital controls.

+/−: positive long-term interest rate-GDP ratio and weak capital controls.

Wage policy:

−: nominal unit labour cost growth far away from inflation target and falling labour income share.

−/+: nominal unit labour cost growth far away from inflation target and rising labour income share.

+/−: nominal unit labour cost growth close to inflation target and falling labour income share.

Fiscal policy:

+: counter-cyclical in many years, high public investment-GDP ratio (higher than 2002–2019 average).

−: pro-cyclical in many years, low public investment-GDP ratio (lower than 2002–2019 average).

+/−: counter-cyclical in many years, low public investment-GDP ratio (lower than 2002–2019 average).

−/+: pro-cyclical in many years, high public investment-GDP ratio (higher than 2002–2019 average).

0/+: same years with pro- and counter-cyclical policy, high public investment-GDP ratio (higher than 2002–2019 average).

Sources: author’s own elaboration based on BCRA (2022a, 2022b), CEP (2022), IMF (2022), ECLAC (2022), Kennedy et al. (2018), Baumann et al. (2018), JP Morgan (2022), Observatory of Economic Complexity (2022).

4 CONCLUSIONS

To contribute to the debate on DGR and MPR in emerging economies, this paper has identified different regimes for Argentina between 2002 and 2019. Following the periodization proposed by the previous literature, DGR and MPR show a clear relationship during the periods studied. However, the analysis of the DGR and the MPR in both periods in Argentina does not consider policy-induced changes within the periods. Therefore, a broad periodization can be helpful, but it might hide more than it shows.

This led us to modify the previous periodization. Consequently, building on stylized facts of the internal and external economic policy environment, a new periodization was proposed. The results indicate a more precise characterization of the Argentine macroeconomy, thus allowing a better understanding of economic policy and its results in terms of aggregate demand and growth. In particular, it is possible to observe the MPR and DGR transition between 2002 and 2015, as well as an abrupt change after 2016.

Our results are in line with the previous studies on DGR analysis, which highlight the relevance of complementing it with the analysis of MPR, when it comes to analyzing growth drivers. As we have shown, with short-run changes in the MPR, we can thus also expect such short-run variations in the DGR. Further studies could analyse Argentina’s growth drivers or demand composition with complementary methods, as reviewed in Hein (2023), for example applying the Sraffian Supermultiplier growth de-composition approach, as well as including further political economy dimensions in the analysis of growth drivers, as found in Regulation Theory, or other strands of comparative or international political economy.

ACKNOWLEDGEMENTS

I would like to thank Eckhard Hein for his comments and help during the development of this research work. I also thank Pablo Bortz, the participants of the October 2022 ‘Frontiers in Growth Regimes Research’ workshop of the IPE Berlin, and the referees of this journal for their comments and suggestions. Any errors are entirely my own responsibility.

  • 1

    Contrary to the post-Keynesian (PK) approach, in the New Consensus Macroeconomics (NCM) approach, inflation-targeting regimes are recommended as the main policy tool for stabilizing an economy, while fiscal policy only plays a supporting role in the macroeconomic policy mix. Moreover, income policies should focus on flexible wages. See Hein/Martschin (2021) for a more comprehensive comparison of the PK and NCM approaches.

  • 2

    Additional effects, such as increasing productivity growth, are also highlighted in the literature. See, for example, Kohler/Stockhammer (2021).

  • 3

    See Dvoskin/Feldman (2015) and Dvoskin et al. (2020) for a theoretical critique of the usual channels relating depreciations and growth. See Amico/Fiorito (2017) for an empirical critique on this issue for the Argentinian case.

  • 4

    Long-run effects on the productive structure are also accounted for in the literature, coined as the ‘financial Dutch Disease’ (Botta 2018).

  • 5

    As a means of avoiding strong appreciating pressures, developing countries can also transform the excess of foreign currency inflows into the accumulation of international reserves (Kaltenbrunner/Painceira 2018).

  • 6

    As Kaltenbrunner/Painceira (2018) argue, the volatility of exchange phenomenon is explained by the currency hierarchy and reinforces it, as external vulnerability and volatile exchange rates weakens developing countries’ currencies. On this regard, even Herr/Priewe’s (2005) optimal MPR might not allow for climbing the currency ladder in the medium run.

  • 7

    Further limits have been identified in the literature regarding peripheral economies’ fiscal policy. Given they are beyond the scope of this work, they will not be covered. For a detailed description of the latter, see Abeles et al. (2020).

  • 8

    This stimulated imports and thus made growth contributions of net exports negative. However, since we are accounting average values for time periods, net exports growth contributions are positive for 2002–2009, mainly due to its high value in 2002 (after the strong devaluation).

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