Argentine Tax Policy under Menem II and De La Rua (1995–2001): Politicization, Firefighting, and Decay

While not exempt from difficult political and institutional legacies, Argentine reformers had been able to enjoy conditions of relative economic stability and growth since mid-1991. That would suddenly change with developments in one of the region’s largest economies— what IMF chief Michel Candessus labeled “the first financial crisis of the twenty-first century.” While economic globalization had clearly bestowed benefits upon Argentina during the first half of the 1990s (not least by way of large inflows of foreign investment), now that same phenomenon revealed its darker face. The Mexican financial crisis of December 20, 1994, produced contagion effects throughout Latin America (known as the Tequila effects), and officially ended investors’ romance with emerging markets in the region. While Chile weathered the crisis rather well due to its flexible exchange rate and its record of superior management of the macroeconomy (and in particular its well-earned reputation for fiscal prudence), for most other regional neighbors the Mexican crisis carried much more serious reverberations. But few countries were more affected than Argentina: its fixed exchange rate seriously handicapped its ability to weather the crisis. Countries with flexible exchange rate regimes could make use of monetary policy to assuage the costs of the crisis on the real economy, an avenue foreclosed to Argentine authorities.