Learning the Hard Way

Sep 1, 2001

Argentina is sunk in a national depression. The country needs bold action to deal with its problems. But the government of Presidente Fernando de la Rúa is losing control.

Argentina seems only to learn the hard way. It took a defeat in a war with Britain 20 years ago to help restore democracy. Ten years later, Argentines had to endure hyperinflation before creating a currency board that delivered the longest period of price stability in generations.

Now, with the government on the brink of defaulting on its $130 billion debt, Congress has approved a law forbidding the government from running a budget deficit ever again. This zero-deficit law and plenty of luck are all that stand between Argentina and default. Optimists believe this law will gain the same exalted status as the convertibility law of 1991 that set up the currency board.

Although Argentina's debt burden is not particularly heavy - it is equivalent to 57% of GDP - the country is on the verge of default and devaluation because its economy stopped growing three years ago. Argentina's...

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