TY - JOUR AU - Dominguez, Kathryn M.E. AU - Tesar, Linda L TI - International Borrowing and Macroeconomic Performance in Argentina JF - National Bureau of Economic Research Working Paper Series VL - No. 11353 PY - 2005 Y2 - May 2005 DO - 10.3386/w11353 UR - http://www.nber.org/papers/w11353 L1 - http://www.nber.org/papers/w11353.pdf N1 - Author contact info: Kathryn M.E. Dominguez University of Michigan Department of Economics and Ford School Weill Hall 735 South State Street Ann Arbor, MI 48109 Tel: 734-764-9498 Fax: 734-763-9181 E-Mail: kathrynd@umich.edu Linda Tesar Department of Economics University of Michigan Ann Arbor, MI 48109-1220 Tel: 734/763 6015 Fax: 734/764-2769 E-Mail: ltesar@umich.edu M1 - published as Kathryn M. E. Dominguez, Linda L. Tesar. "International Borrowing and Macroeconomic Performance in Argentina," in Sebastian Edwards, editor, "Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences" University of Chicago Press (2007) AB - This paper provides an overview of the major economic events in Argentina from the adoption of the convertibility plan in 1991 to the collapse of the exchange rate regime in 2001. We focus on the relationship between the credibility of the currency board and capital flows, and the inescapable link between fiscal and monetary policy. Argentina inadvertently entered into a vicious circle with financial markets -- one in which it felt compelled to raise the exit costs from the currency board in order to maintain the regime%u2019s credibility. As exit costs mounted, financial markets became increasingly concerned about the dire implications of a devaluation, which in turn, compelled the government to raise exit costs further. In the late 1990s, when Argentina went into recession, it required some sort of stimulus -- either a loosening of monetary policy (i.e. a devaluation) or fiscal stimulus. But either way spelled disaster. The added pressure of capital outflow, first by international investors and then the withdrawal of deposits from the Argentine banking system, eventually tipped the scales. ER -