Argentina: Macroeconomic Performance and Crisis

The paper is presented in two parts. The first discusses two key issues related to the Convertibility regime established in 1991 and its final crisis in 2001. The second part analyzes the economic performance in the nineties with a focus on the effects on the labor market. One key issue refers to the policy regime and the economic performance it led to. The paper claims that the case is similar to other Latin American experiences of financial liberalization and opening that ended up in crisis. A similar set of critical factors can be identified and a common model can explain both the economic performances and the crises. The fiscal issue is the second key point considered in the paper. It is shown that the public debt dynamics in the second half of the nineties resulted mainly from the cumulative effect of high interest rates (pushed-up by the rise in the country risk premium) after the Asian and Russian crises. The interest payments were the main factor behind the increase of the fiscal deficit in 1998-2001. The fall in the social security system revenues also contributed to that increase. It was mainly a consequence of the recession and the employment contraction that took place from mid-1998. The fiscal deficit rose in spite of a simultaneous significant increase in the primary surplus. In order to give support to these assertions, the paper presents a detailed review of fiscal data and new estimations of the public debt evolution. In the second part of the paper the analysis stresses the role played by the capital flows and the negative effects of the appreciated exchange rate and the macroeconomic volatility on the performance of the labor market.