The Ukraine Question. The historic truth versus the by Wolkonsky A.

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The management of the Argentine crisis has two additional lessons to teach us that should be borne in mind as we move forward. e. national authorities and the IMF – are to advance in the right direction, they will have to take a highly pragmatic approach and be willing to learn as they go along. This is the only way that the economic authorities can, slowly but surely, gain credibility. In Argentina, the restrictions that have been placed on financial transactions cannot be entirely dismantled until confidence in the new monetary and exchange rate regime has been built up.

It is true, however, that it was not until mid-2002 that the country’s favourable trade balance began to be reflected in a stabilisation of international reserves, which indicates that significant capital outflows continued throughout the first semester. On the negative side, the combination of the higher unemployment levels associated with the slump in production activity and the decline in real wages was reflected in a steep increase in poverty and indigence. Nevertheless, since the collapse of production activity and the breakdown of the convertibility system both occurred in 2001, it is difficult to lay the blame for those events on the way the crisis has been managed in 2002.

What is more, the authorities were faced with the paradox that, insofar as the convertibility regime was characterised by an endemic tendency to run a trade deficit and by dependence on external financing, the fiscal deficit was, in a sense, functional. It made it possible to maintain aggregate demand and economic growth while at the same time providing a portion of the necessary external financing that the economy needed in order to grow during boom periods. Wrong Assumptions In 2001 the International Monetary Fund handled the Argentine crisis in a radically different way than it had dealt with other episodes since the Mexican crisis and, in fact, than it had managed the crisis in Argentina itself up to December 2000, when international financial institutions had provided it with its “armour-plating”.