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July 16, 2002
Policy Analysis no. 445
Fixing Argentina
by Kurt Schuler
Kurt Schuler is a senior economist at the Joint Economic Committee of the U.S. Congress. The views expressed here are those of the author, not necessarily those of the Joint Economic Committee or the U.S. government.
Published on July 16, 2002
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Argentina's currency crisis and economic depression have been caused by the bad policies of its government--not by banks, speculators, the International Monetary Fund (despite the bad advice it has given), or other scapegoats. The De la Rúa and Duhalde governments have made several gigantic blunders, namely,
- increasing tax rates,
- freezing bank deposits,
- devaluing the peso, and
- forcibly converting dollar bank deposits and contracts into pesos ("pesofication").
At present, all property is potentially subject to government control or confiscation. There is little reason for anybody to produce, save, or invest in Argentina. The country is returning to the failed economic model that caused so much trouble in the 1980s and had to be jettisoned from 1989 to 1991.
Kurt Schuler is a senior economist at the Joint Economic Committee of the U.S. Congress. The views expressed here are those of the author, not necessarily those of the Joint Economic Committee or the U.S. government.
Fixing Argentina's currency and economy requires reversing those blunders and returning to policies that respect private property and encourage the private saving, investment, and initiative that create economic growth. The main steps necessary in the short term are
- officially dollarize, converting all peso assets, liabilities, and prices into dollars;
- to the extent possible, reverse the damage done by pesofication of deposits;
- reconstruct the financial system; and
- drastically reduce tax rates.
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An easily accessible work on the economic crisis, the book guides readers through a world of irresponsible behavior, showing how many of the "solutions" being implemented are repeating the mistakes that caused the crisis.
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