Case Detail

Case Summary

Argentina Currency Peg and Fiscal Reforms (A)

Case Number: 5-110-004(A), Year Published: 2010

HBS Number: KEL569

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Authors: Nabil Al-Najjar; Simone Galperti

Key Concepts

Inflation, Currency Peg, Financial Crisis, Currency Crisis, Monetary Policy, Fiscal Policy

Abstract

Case A starts by reviewing several attempts made by three consecutive Argentine governments between 1973 and 1989 to fight the three-digit inflation rates that had troubled the country since the end of World War II. Next, the implementation of the currency peg under the broad umbrella called the “convertibility plan” is discussed and its rationale is explained in connection with the Central Bank’s role in controlling inflation and market expectations. The case then outlines the fiscal reforms introduced in the early 1990s concerning public finance, market regulation, and social security. Finally, the outcomes of these policies are briefly summarized.

Learning Objectives

Argentina’s currency collapse provides a vivid illustration of the perils of government control on exchange rates in an export-dependent economy. Students will learn and understand (1) the role of herding and expectations in currency collapse; (2) the interdependence of fiscal and monetary policies; (3) monetary base management and its effects on inflation; (4) the advantages and drawbacks of currency pegs; (5) the story of the late 1990s financial and currency crises.

Number of Pages: 4

Extended Case Information

Teaching Areas: Economics, Finance

Teaching Note Available: Yes

Geographic: Argentina, South America

Industry: Government, Finance, Banking

Organization Name: Central Bank of Argentina

Organization Size: Large

Year of Case: 1973-1999