In This Review

Argentina and the Fund: From Triumph to Tragedy
Argentina and the Fund: From Triumph to Tragedy
By Michael Mussa
Institute for International Economics, 2002, 90 pp.

In late 2001, the government of Argentina defaulted on its outstanding debt, the largest sovereign default in history. The banking system collapsed, and the Argentine economy went into deep economic depression. Mussa, former chief economist at the International Monetary Fund, here gives a brief and cogent account of what happened, why it happened, and how it might have been avoided. He also addresses the role of the IMF (which provided exceptional financial support to Argentina in 2001) and lessons for future IMF lending. The fundamental problem, according to Mussa, is that Argentina's fiscal condition (federal and provincial) was inconsistent with its Convertibility Plan, which involved a strong commitment to one-to-one convertibility between the peso and the U.S. dollar. One or the other had to yield, but neither did until the government's financial crisis. He might have added that Argentina's decision to join Mercosur in 1993 committed it to greater economic engagement with crisis-prone Brazil, which further reduced the probability that the Convertibility Plan could survive indefinitely after its initial successes.