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No. 445

July 16, 2002

Fixing Argentina

by Kurt Schuler

Executive Summary

Argentina's currency crisis and economic

invest in Argentina. The country is returning to

depression have been caused by the bad policies

the failed economic model that caused so much

of its government--not by banks, speculators,

trouble in the 1980s and had to be jettisoned

the International Monetary Fund (despite the

from 1989 to 1991.

bad advice it has given), or other scapegoats. The

Fixing Argentina's currency and economy

De la Rúa and Duhalde governments have made

requires reversing those blunders and returning

several gigantic blunders, namely,

to policies that respect private property and

encourage the private saving, investment, and

· increasing tax rates,

initiative that create economic growth. The main

· freezing bank deposits,

steps necessary in the short term are

· devaluing the peso, and

·  forcibly converting dollar bank deposits and

· officially dollarize, converting all peso

contracts into pesos ("pesofication").

assets, liabilities, and prices into dollars;

· to the extent possible, reverse the dam-

At present, all property is potentially subject

age done by pesofication of deposits;

· reconstruct the financial system; and

to government control or confiscation. There is

· drastically reduce tax rates.

little reason for anybody to produce, save, or

_____________________________________________________________________________________________________

Kurt Schuler (kurt_schuler@jec.senate.gov) 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.