The Political Economy of Exchange Rate Policies in Argentina

This paper identifies three periods in Argentine exchange rate policy, corresponding with different development strategies and political coalitions. The first, periodic adjustments to a pegged rate until the mid-1970s, accompanied an Import Substitution Industrialization approach and a redistribution of income from agrarian to industrial production during an era of strong labor union influence. A second period, from the mid-1970s, marked by accelerated devaluations, represented efforts by both military and civilian governments to meet the demands of their respective constituencies while maintaining capital flows from abroad; these efforts culminated in hyperinflation. A third period, beginning in the early 1990s, was notable for exchange rate stability, based on the Convertibility Plan, as a broad consensus emerged that the exchange rate should be used for containing inflation rather than engaging in redistribution among domestic interest groups. The authors conclude that additional innovations in Argentina`s monetary and exchange rate policies may eventually be necessary.