Category: Lamfalussy, Alexander


“El momento que atraviesa la región, con recursos naturales y humanos impresionantes, sin conflictos raciales ni religioso, es un momento único y creo que Argentina y los argentinos están ante una oportunidad sin precedents.“ 

“The present time [the region, Latin America] is going through, with its impressive natural and human resources, devoid of racial and religious conflicts, is a unique moment, and I believe that Argentina and Argentines are at the doorstep of an unprecedented opportunity.”

—Cristina Fernandez de Kirchner, October 29, 2006

Argentina’s history has been marked by perplexing cycles of opportunity and crisis. In recent months, Argentina’s currency is plummeting and inflation is soaring. Average Argentines, as Ignacio de los Reyes of the BBC (Argentina peso crisis: Testing times ahead) writes, are feeling the burden:

“People are tired,” Emanuel, a young banker from Buenos Aires, told de los Reyes. “One week, the government put restrictions on online shopping and now they allow the purchase of dollars; it does not follow a pattern, they contradict each other all the time,”   …

 “One day, Argentines went to sleep with a plummeting peso and tight exchange controls. The next day, the country awoke to a radical change in the government of Cristina Fernandez de Kirchner’s foreign currency policy. After more than two years of increasing restrictions on the purchase of dollars, like taxing credit card transactions abroad or restricting online commerce on foreign websites, Ms Fernandez’s chief of staff, Jorge Capitanich, announced that buying dollars for savings accounts would be legal again.”

The latest crisis follows a tumultuous 200 years of excessive borrowing, defaults, and long-term economic decline as detailed by Boris Korby and Katia Porzecanski (Argentina Bust Lures Investors After 200 Years of Defaults):

The South American nation has stiffed creditors seven times since independence from Spain in 1816, and following the latest default, in 2001, Argentina has yet to work out a settlement with all its financiers.”

Despite its track record, investors still see opportunity in Argentina. Time will tell whether history will repeat itself yet again. One remarkable aspect is that Cristina Fernandez, Argentina’s President, refuses to comment on recent events except for Twitter messages that attribute the fall of the Argentine peso to “speculative pressures.” Simon Romero and Jonathan Gilbert of the New York Times (As Argentine Peso Falters, President Keeps a Low Profile) note the conspicuously low profile of Argentine’s normally outspoken president. Some economists say that

“[T]he trouble .. stems from the decisions Mrs. Kirchner and her government have championed for years. She describes her politics as “national and popular,” referring to efforts to promote national interests and industry, and to put in place policies that reach out to the masses. ..

Generous social spending after the economic collapse, like freezing household electricity rates, has widened Argentina’s budget deficit, encouraged energy consumption and increased the country’s dependence on energy imports, eroding the central bank’s hard currency reserves.”

For more theoretical insight and discussion, we refer our readers to the work of Alexandre Lamfalussy, the eminent international banking expert, who has studied the impact of financial globalization on financial fragility. His 2000 book, Financial Crises in Emerging Markets (Yale University Press),is a gem —an outstanding example of behavioral research in investments and asset pricing.