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Macroeconomic Policy in Argentina During 2002–2013

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Abstract

We analyze Argentina’s macroeconomic policy and performance between 2003 and 2013. The period began with a rapid recovery following the 2001–02 crisis. Recovery then turned into strong and sustained growth. By late 2011, despite a very favorable external context, Argentina entered a stagflationary trap. Facing a visible lack of foreign exchange, the authorities introduced and reinforced a series of controls, which did not prevent a currency crisis in late 2013 and early 2014. We argue that macroeconomic performance during the whole period was closely related to the way macroeconomic policy was conducted. More specifically, we claim that the shift from high growth to stagflation was due to a change in the approach to macroeconomic policy: from one aiming to preserve a stable and competitive real exchange rate and twin surpluses, to another one of populist orientation.

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Notes

  1. We follow the Latin American tradition of defining the exchange rate as the domestic price of a foreign currency. Consequently, a rise (fall) of both the nominal and the real exchange rate implies a nominal or real depreciation (appreciation).

  2. By ‘competitive’ RER we mean one that is above its equilibrium level. Equilibrium RER is a concept that generates no few confusions and debates. For simplicity, we define it here as the one at which the economy is at macroeconomic equilibrium (ie, full employment with low and non-accelerating inflation and external balance). Conceptually, a developing economy has a ‘competitive’ RER level when the modern (or non-traditional) tradable sector reaches a risk-adjusted profit rate that is at least equal to that of the same sector in a developed economy. See Rapetti (2013a) for further details.

  3. See Rodrik (2008), Razmi et al. (2012) and Rapetti et al. (2012), among others.

  4. See Polterovich and Popov and Polterovich (2002), Levy-Yeyati and Sturzenegger (2007) and Prasad et al. (2007).

  5. A debt restructuring was carried out between January and May 2005. About 76% of the defaulted debt involving 82 billion dollars was exchanged for new bonds. The debt swap implied a nominal haircut of 40% of Argentina’s GDP. See Damill et al. (2010) for an analysis and description of the debt restructuring process. A second debt swap occurred in 2010, in which another 17% accepted a similar offer to the one of 2005.

  6. The manipulation of the CPI affected the elaboration of other statistics, in particular real and nominal GDP and poverty and extreme poverty rates. In all figures and tables in this article that involve variables affected since January 2007, we use the CPI calculated by ECOLATINA, a private consultancy firm, and the real GDP estimated by ARKLEMS+LAND, a research center at the University of Buenos Aires.

  7. Canitrot (1975) is a seminal contribution to the study of macroeconomics populism. Dornbusch and Edwards (1991) and Bresser-Pereira and Dall’Acqua (1991) are other relevant contributions to this literature.

  8. A more comprehensive description and analysis of the measures taken during the emergency period can be found in Frenkel and Rapetti (2006).

  9. Table A1 in the Appendix summarizes the main modifications of the legal and institutional characteristics of central banking in Argentina between 2002 and 2013.

  10. Frenkel and Rapetti (2008) analyze in greater detail monetary and exchange rate policies during the 2002–2007 period.

  11. See Frenkel (2007) for the conditions for sterilized foreign interventions to be sustainable.

  12. In a managed-floating exchange rate regime there is no need to establish any specific relation between the monetary base and international reserves. However, since Argentina had lived more than a decade with a currency board demanding a stock of international reserves at least equal to the monetary base at the official exchange rate, the authorities believed that the decision of maintaining enough reserves to back the monetary base would generate confidence in the private sector and support their demand for money.

  13. We calculate the ex-ante real interest rate as the nominal interest rate in period t minus the yearly inflation rate between t−1 and t. We assume adaptive expectations because of the lack of a reliable measure of private sector’s expected inflation since the manipulation of official statistics.

  14. We keep assuming adaptive expectations and calculate Badlar U$ as the peso interest rate of time deposits of 1 million pesos or above in period t discounted by the variation of the nominal exchange rate between t−1 and t.

  15. See Frenkel (2008) and Rapetti (2013b) on the theoretical aspects of macroeconomic policy coordination in a SCRER regime.

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Acknowledgements

The authors are grateful to Ramiro Albrieu and Oscar Cetrángolo for their helpful comments and to Diego Friedheim for his assistance.

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Authors and Affiliations

  1. CEDES, CONICET and University of Buenos Aires, Sánchez de Bustamante 27, Buenos Aires, 1173, Argentina

    Mario Damill & Martín Rapetti

  2. CEDES and University of Buenos Aires, Sánchez de Bustamante 27, Buenos Aires, 1173, Argentina

    Roberto Frenkel

Authors
  1. Mario Damill
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  2. Roberto Frenkel
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  3. Martín Rapetti
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Appendix

Appendix

Table A1

Table A1 Main legal and institutional characteristics of central banking in Argentina, selected periods
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Damill, M., Frenkel, R. & Rapetti, M. Macroeconomic Policy in Argentina During 2002–2013. Comp Econ Stud 57, 369–400 (2015). https://doi.org/10.1057/ces.2015.3

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