As the Eurozone crisis lingers on, euro exit is now being debated in ‘core’ as well as ‘periphery’ countries. This column examines the potential costs of euro exit, using France as an example. The authors estimate that 30% of private marketable debt would be redenominated, but since only 36% of revenues would be redenominated, the aggregate currency mismatch is relatively modest. However, the immediate financial cost of exiting the euro would nevertheless be substantial if public authorities were to bail out systemic and highly exposed companies.
David Amiel, Paul-Adrien Hyppolite, Sunday, March 15, 2015
Sebastian Edwards, Wednesday, March 4, 2015
There were 24 sovereign defaults and debt restructurings between 1997 and 2013. Using data on 180 debt restructurings – for both sovereign bonds and sovereign syndicated bank loans – this column argues that the roughly 75% ‘haircut’ Argentina imposed on its creditors in 2005 was an outlier. Greece’s ‘haircut’ of roughly 64% in 2012, by contrast, was in line with previous experience.
Nauro F. Campos, Saturday, December 20, 2014
Argentina is the only country in the world that was 'developed’ in 1900 and ‘developing’ in 2000. Various explanations highlight the roles of trade openness, political institutions, financial integration, financial development, and macroeconomic instability. No study has so far attempted a quantitative assessment of the relative importance of each of these competing factors. This column presents new evidence suggesting that financial development and institutional change are two main factors behind the unusual growth trajectory of Argentina over the last century.
Alberto Cavallo, Guillermo Crucas, Ricardo Perez-Truglia, Monday, November 10, 2014
Although central banks have a natural desire to influence household inflation expectations, there is no consensus on how these expectations are formed or the best ways to influence them. This column presents evidence from a series of survey experiments conducted in a low-inflation context (the US) and a high-inflation context (Argentina). The authors find that dispersion in household expectations can be explained by the cost of acquiring and interpreting inflation statistics, and by the use of inaccurate memories about price changes of specific products. They also provide recommendations for central bank communication strategies.
Jeffrey Frankel, Tuesday, July 22, 2014
The US court ruling forcing Argentina to pay its hold-out creditors has big implications. This column argues that some of them are particularly worrying. The court ruling undermines the possibility of negotiated re-structuring of unsustainable debt burdens in future crises. In the future, it will not be not enough for the debtor and 92% of creditors to reach an agreement, if holdouts and a New York judge can block it. This will make both debtors and creditors worse-off.
Pablo Fajgelbaum, Stephen Redding, Saturday, July 12, 2014
External integration is often viewed as an important driver of economic development, but most existing studies use aggregate data. This column present evidence from a natural experiment provided by Argentina’s integration into the world markets in the late 19th century. The findings suggest that proximity to trade centres is associated with employment density, high lands rates relative to wages, and structural transformation away from agriculture.
Elías A. Baracat, J. Michael Finger, Julio J. Nogués, Raúl León Thorne, Monday, October 28, 2013
Trade reforms must be durable if countries are to reap the benefits of international specialisation and trade. Whereas Peru has sustained the reforms it carried out in the 1990s, Argentina has introduced multiple trade restrictions in recent years. This column argues that Peru’s success is due to two factors. First, Peruvian trade reform was part of a broader reform effort. Second, by highlighting the success of Asian countries and negotiating bilateral agreements, Peru’s political leaders fostered a positive vision of Peru’s role in the world economy.
Mickey Levy, Peter Kretzmer, Wednesday, May 16, 2012
Greece’s economic and financial crisis is quickly deteriorating and there is no strategy – or even a coalition government – to figure out what to do next. This column looks at the lessons from Argentina’s default in 2001 and argues that Greece’s road to necessary economic reforms, fiscal sustainability and recovery may be even more daunting.
Eduardo Levy Yeyati, Monday, November 7, 2011
Argentina's economic woes are always a topical subject, and a particularly relevant example for the Eurozone current crisis. This column weighs up Argentina's post-election outlook from a balanced perspective.
Eduardo Levy Yeyati, Sunday, October 2, 2011
One of the many proposals for escaping the Eurozone crisis is to follow in the footsteps of Argentina since its currency fiasco a decade ago. This column points out the realities of such a path: regressive wealth transfers and debt dilution. Against this dismal backdrop, a fiscal union might well be a better option.
Miguel Kiguel, Tuesday, August 16, 2011
A decade ago Argentina was in the midst of a severe economic crisis. This column argues that the episode offers lessons for the Eurozone today. Unless Greece takes major steps to improve its competitiveness and growth prospects, the country has little hope to get out of this crisis.
Eduardo Levy Yeyati, Thursday, January 20, 2011
The global crisis has reignited debate on the desirability of capital controls. This column examines evidence from Argentina and Chile and argues that capital controls can be effective, but that their effectiveness and efficiency varies. It adds that controls need to be considered as part of a macro-prudential toolkit to prevent asset inflation and overvaluation that is costly to revert in the down cycle.
Demián Dalle, Federico Lavopa, Tuesday, January 11, 2011
Since the breakout of the global crisis and the combined pledge to refrain from protectionism, the Global Trade Alert – among others – has documented numerous examples of countries breaking their promises. This column revises a paper from the 7th Global Trade Alert, providing analysis of Argentina’s unique policy responses and their surprising consequences.
Eduardo Levy Yeyati, Mario I. Blejer, Wednesday, July 21, 2010
Rumours of Eurozone break-up are mounting. This column argues that exiting a strong currency for a weak one poses almost unthinkable challenges, from the redenomination of contracts and the imposition of bank restrictions to the restructuring of external debt and limiting of capital mobility. Lessons from Argentina illustrate just how radical the changes would need to be.
Domingo Cavallo, Joaquín Cottani, Friday, May 7, 2010
Greek debt woes could spark contagion within and beyond Europe. Argentina’s former finance minister and co-author draw four lessons from Argentina’s crisis: devaluation/exit is not the answer; orderly debt restructuring involving a ‘Brady Plan’ now is better than a disorderly one later; fiscal consolidation that improves external competitiveness is a must; all these must be done simultaneously
Augusto de la Torre, Eduardo Levy Yeyati, Sergio Schmukler, Saturday, March 6, 2010
The fiscal crisis in several European countries has led many commentators to suggest novel solutions, including a holiday from the euro. This column examines the much-cited example of Argentina and argues that such ideas look better on paper than in practice. What these countries need is a “good old bailout” – conditional on “getting the house in order”.