Inflation and the Financing of Alternative Development Strategies

Among countries which have followed industrialisation policies based on import substitution, Argentina is probably the one which adhered to this strategy over the longest period of time. It is possible to identify an early process of import substitution during the first stages of Argentina’s economic development. Up to the Second World War industrialisation was mainly connected to the ups and downs of the exporting sector. The war forced Argentina to develop a much more diversified industry while the economic policies carried out after the war were aimed at protecting this sector. With changing emphasis, this strategy lasted until 1976–7, but it failed as a growth policy. Inflation was a by-product and, as a consequence, the capital market lost its importance as a source of financing, both the private and public sectors finding subsidised bank credit a convenient substitute. Financial repression was an outstanding characteristic of the use of subsidised bank credit.