ARGENTINA: WHAT WENT WRONGGuillermo PerryChief Economist LAC, World BankIDB Annual Meetings Fortaleza, Brazil, March 2002

QUESTIONSWas this a first generation crisis plainly due to excess public expenditures and deficits that led to unsustainable accumulation of debt?If it was, how and when was it caused?Or was it a case of multiple equilibria related to:The fiscal contingencies associated with an eventual nominal depreciation of the currency?Changes in growth expectations due to the protracted deflationary adjustment to external shocks? Are Currency Boards doom to fail in a world of floating currencies and volatile capital flows?Can close trading partners (such as Brazil and Argentina) keep totally different exchange rate regimes?

THE FISCAL PROBLEM IN PERSPECTIVE:USSUAL DEBT INDEXES DID NOT LOOK EXCESSIVEDebt ratios: Argentina vs. Emerging countriesIn percentageI: Public Debt Interest, T: Tax revenues, D: Public DebtSource: Goldman Sachs.

BUT, THERE WAS A DETERIORATING TREND IN FISCAL BALANCES SINCE 1995IN THE FEDERAL GOVERNMENT AND THE PROVINCES

Chart1

1990-0.11990

19911.6-0.378911019

19920.50.0843018807

0.93325730541.1545211455-0.0937714792

-0.3957427598-0.1110550206-0.2191640713

-0.9882887147-0.5343913214-1.3682030031

-2.0721311844-1.9343761473-0.6760983419

-1.5646785379-1.4602937903-0.4701581911

-1.394822845-1.3626099236-0.7890047253

-2.5939064455-1.6834002715-1.5919404471

-2.4341309645-2.3833519107-1.0075914173

-4.0707301667-3.8863170149-1.6142201539

Fiscal balance/GDP

Fiscal balance including privat. rev./GDP

Consolidated Provincial Balance/GDP

Fiscal Balance/GDP(%)

Unemployment

Evolution of Main Ocupational Indicators

28 major urban conglomerates

Unemployment

1990May8.6

October6.3

1991May6.9

October6

1992May6.9

October7

1993May9.9

October9.3

1994May10.7

October12.2

1995May18.4

October16.6

1996May17.1

October17.3

1997May16.1

October13.7

1998May13.2

October12.4

1999May14.5

Oct13.8

2000May15.4

Oct14.7

2001May16.4

Oct18.3

Unemployment

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Unemployment Rate28 major urban conglomerates

Poverty

Poverty

41.411.3

30.45.9

24.14.4

21.84.3

21.63.7

27.26.1

307.3

29.46.8

29.47.1

Poverty Headcount

Extreme Poverty

Argentina: Rates of Poverty(percentage)

GDPgrowth

gdp86 larga

1990-1.8304035651-0.0183040357

199110.57856008250.1057856008

19929.60621896740.0960621897

19935.72258002580.0572258003

19945.8362006970.085

1995-2.8452096112-0.046

19965.52668982820.043

19978.11104675760.086

19983.85017886910.042

1999-3.4024289334

2000-0.5218974583

2001-3.6

Poverty Headcount

ExtremePoverty

GDPgrowth

Argentina: GDP growth rate (%)GDP at constant prices*

Industrial Production

* 1990 to 1993 corresponds to growth rates computed on GDP at constant 1986 prices, and 1994-2000 at constant 1993 prices. 2001 is a World Bank estimate.

embi+

embi+

791

736

737

733

741

725

721

712

698

705

697

699

698

693

678

678

680

670

660

665

663

664

660

668

670

682

675

687

686

683

681

677

695

714

739

738

746

761

790

803

791

782

727

733

734

761

738

765

784

801

845

855

914

893

896

961

1045

938

898

885

920

960

950

951

941

919

908

876

838

857

857

892

896

895

945

1082

1295

1200

1210

1062

1015

1039

1066

1095

1069

1044

979

993

1008

994

1067

1088

1069

1016

992

964

954

925

937

917

927

930

971

993

1023

965

924

911

905

881

877

892

904

940

930

985

993

985

972

992

969

983

997

1003

1050

1059

1077

1123

1154

1137

1202

1314

1641

1623

1661

1480

1540

1617

1475

1373

1413

1439

1485

1615

1585

1599

1755

1588

1583

1607

1584

1500

1464

1433

1448

1503

1454

1387

1523

1566

1669

1452

1424

1463

1466

1423

1386

1424

1430

1380

1407

1473

1509

1510

1562

1634

1634

1611

1583

1637

1633

1608

1616

1646

1643

1615

1652

1712

1766

1864

1887

1919

1886

1811

1865

1829

1761

1691

1752

1714

1695

1708

1762

1769

1838

2066

2100

2162

2309

2585

2435

2436

2269

2365

2481

2614

2788

2617

2863

3032

3164

3026

2973

2742

2965

2991

3332

3372

3113

4040

3971

4138

4155

4179

4152

4035

4158

4107

4159

4146

4227

4716

4753

5501

5498

5307

4967

4372

Argentina: Sovereign Risk in 2001EMBI plus index

Reserves

Reserves

25.148

25.623

25.647

25.69

25.773

25.773

25.773

26.027

26.212

26.357

26.447

26.54

26.54

26.54

26.572

26.179

26.076

26.064

25.963

25.963

25.963

25.951

26.068

26.014

26.12

25.84

25.84

25.84

25.822

25.696

25.437

25.887

26.192

26.192

26.192

26.13

26.203

26.038

26.04

25.916

25.916

25.916

26.138

26.119

25.994

25.973

25.93

25.93

25.93

25.933

25.719

25.788

25.932

26.177

26.177

26.177

26.055

25.967

25.377

25.747

25.709

25.709

25.709

25.768

25.608

25.393

25.319

25.402

25.402

25.402

25.365

25.075

24.95

24.691

23.625

23.625

23.625

23.326

23.086

23.037

22.771

22.702

22.702

22.702

22.325

22.331

22.221

21.723

21.924

21.924

21.924

21.924

21.74

22.231

22.642

22.86

22.86

22.86

22.862

23.983

24.091

24.091

24.091

24.091

24.091

22.065

22.092

22.016

21.91

21.717

21.717

21.717

21.301

20.634

20.686

20.785

20.688

20.688

20.688

20.547

20.547

20.857

20.994

21.034

21.034

21.034

21.122

21.292

21.201

20.519

20.725

20.725

20.725

21.146

21.118

21.071

20.805

20.956

20.956

20.956

20.831

20.704

20.522

20.653

20.653

20.653

20.653

20.265

20.315

20.271

20.197

20.806

20.806

20.806

20.965

20.774

20.759

20.586

20.752

20.752

20.752

20.752

20.557

20.583

20.535

19.595

19.595

19.595

19.595

19.827

20.189

20.008

20.299

20.299

20.299

20.068

20.052

20.431

20.989

21.082

21.082

21.082

21.032

21.207

21.194

20.861

20.37

20.37

20.37

20.37

21.027

20.655

19.593

18.94

18.94

18.94

18.819

18.64

18.303

18.351

18.385

18.385

18.385

18.356

18.079

17.853

17.669

17.045

17.045

17.045

16.949

16.693

16.499

16.354

15.663

15.663

15.663

15.374

15.587

15.431

15.413

15.459

15.459

15.459

15.598

15.695

15.466

15.602

15.658

15.658

15.658

15.658

15.423

15.4

15.335

15.282

15.282

15.282

15.265

15.078

14.712

14.341

14.378

14.378

14.378

14.378

14.2

14.072

14.184

14.33

14.33

14.33

18.936

18.978

18.824

20.227

20.871

20.871

20.871

20.931

20.989

20.896

21.173

21.321

21.321

21.321

21.192

21.595

21.466

20.374

20.584

20.584

20.584

20.543

20.747

20.683

20.6

20.244

20.244

20.244

20.244

19.985

19.821

19.687

19.493

19.493

19.493

19.543

19.606

19.751

19.622

19.668

19.668

19.668

19.391

19.516

19.47

19.25

18.684

18.684

18.684

18.604

18.469

18.08

17.852

17.302

17.302

17.302

17.324

17.324

17.537

17.715

17.583

17.583

17.583

17.055

18.632

18.756

18.816

18.556

18.556

18.556

18.407

18.403

18.065

18.001

17.706

17.706

17.706

17.476

17.415

16.92

16.453

14.74

14.74

14.74

14.662

14.807

14.842

15.047

15.14

15.14

15.14

15.174

15.177

15.137

15.063

15.23

15.23

15.23

15.305

15.045

14.618

14.392

14.353

14.353

14.353

14.38

14.38

14.385

14.608

14.682

14.682

14.682

14.546

International Reserves at the Central Bank in Foreign Currency

International Reserves at the Central Bank in Foreign Currency in 2001Billion dollars

Deposits

Deposits

85985

85994

86171

86296

85904

85904

85904

86064

85853

86195

86470

86516

86516

86516

86470

86653

86646

86565

86558

86558

86558

86510

86513

86810

86868

87250

87250

87250

87407

87655

87411

87515

87388

87388

87388

87295

87183

87103

86824

87004

87004

87004

87239

87167

86937

87025

86680

86680

86680

86798

86654

86926

87022

87189

87189

87189

87599

87754

88090

87756

87433

87433

87433

87132

87206

86764

86516

86313

86313

86313

86477

86403

86052

85767

85581

85581

85581

85180

84527

84468

84151

83539

83539

83539

83901

83740

83657

82994

82433

82433

82433

82433

82553

82476

82421

82212

82212

82212

82149

82893

82590

82590

82590

82590

82590

82801

82743

83039

82953

82759

82759

82759

82578

82383

82226

82397

82568

82568

82568

82819

82819

82353

82067

81838

81838

81838

81738

81688

81712

81280

81509

81509

81509

81796

82338

82314

82225

82246

82246

82246

82286

82296

82302

83162

83162

83162

83162

83149

83323

83289

83346

83013

83013

83013

83091

83270

83213

82985

83187

83187

83187

82961

82900

83371

83282

82462

82462

82462

82462

82308

82928

82952

82998

82998

82998

82892

83148

83483

83471

83684

83684

83684

83615

83445

83562

82711

82171

82171

82171

82171

81873

81278

80350

79637

79637

79637

79359

78956

79241

79008

78491

78491

78491

78363

78137

78120

78333

77930

77930

77930

77839

77682

77401

76791

75961

75961

75961

75650

75371

74836

74719

75093

75093

75093

74961

74971

74518

74485

74496

74496

74496

74496

74476

74451

74360

74690

74690

74690

74842

74987

75368

75226

75020

75020

75020

75040

74719

74954

74815

74746

74746

74746

74727

74739

74948

74940

75334

75334

75334

75458

75597

75766

75994

75993

75993

75993

76323

76410

76854

76305

76666

76666

76666

76243

76392

76258

75830

75126

75126

75126

75126

75042

74698

74773

75000

75000

75000

74971

74894

74999

74862

74927

74927

74927

75090

75275

75508

75548

75472

75472

75472

75310

74879

73780

73522

72812

72812

72812

72229

72229

72140

72012

72441

72441

72441

72657

72405

72370

72411

72211

72211

72211

72125

71879

71948

71915

71815

71815

71815

71860

71709

71544

70974

68866

68866

68866

68776

68693

68771

68752

68594

68594

68594

68442

68435

68756

68664

68664

68664

68664

68690

68921

68745

68187

68749

68749

68749

68486

68486

68496

67373

67411

67411

67411

66976

Total Deposits

Total Deposits in 2001Million pesos

FiscalDeficit

199019911992199319941995199619971998199920002001e

Fiscal Deficit2207-1019-2550-5639-4582-4170-7347-6936-11037

Fiscal Deficit inclusive of privatization revenues2731-286-1379-5264-4277-4073-4768-6792-10537

GDP236505.0257440.0258031.9272149.8292858.9298948.4283260.0284960.0271130.3

199019911992199319941995199619971998199920002001e

Fiscal balance/GDP0.9-0.4-1.0-2.1-1.6-1.4-2.6-2.4-4.1

Fiscal balance including privat. rev./GDP-0.11.60.51.2-0.1-0.5-1.9-1.5-1.4-1.7-2.4-3.9

Consolidated Provincial Balance/GDP-0.380.08-0.09-0.22-1.37-0.68-0.47-0.79-1.59-1.01-1.61

FiscalDeficit

Fiscal balance/GDP

Fiscal balance including privat. rev./GDP

Consolidated Provincial Balance/GDP

Fiscal Balance/GDP(%)

SO PUBLIC DEBT INDEXES WERE ON THE RISE

Sheet1

Deuda Publica/ PIBDeuda Publica/ ExportacionesIntereses/ ImpuestosIntereses/PIBIntereses/ Exportaciones

Argentina50.1362.928.23.827.5

Brasil*49.4406.7237.259.3

Colombia**50.825.35

Mexico28.281.925.12.67.5

Peru45.3233.918.72.311.9

cuadro

2000 Public Debt Ratios: Argentina , Brazil, Mexico, and Peru

Total debt / GDPTotal Debt / Exports*Interest / Tax Rev.Interest / GDPInterest / Exports*Interest / Current Rev.

Argentina50.1362.928.23.827.521.1

Brazil49.4406.723.07.259.3

Mexico28.281.925.12.67.512.3

Peru45.3233.918.72.311.915.4

Sources: Argentina's Country IMF Report, 2001; Brazil's Central Bank, Mexico's Ministerio de Hacienda, Peru's Central Bank.

Note: Brazil's debt includes the central bank. Brazil's figures also Include the effect of depreciation on the interest payments of total debt

* Bank staff estimates. Exports of goods and services.

Series CodeSeries NameCountry CodeCountry Name2000

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)ARGArgentina146172002304

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)BRABrazil237952892928

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)MEXMexico150287794176

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)PERPeru28559900672

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)ARGArgentina38342000640

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)BRABrazil69202001920

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)MEXMexico192830783488

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)PERPeru10055000064

NY.GNP.MKTP.CDGross national income (GNI) (US$)ARGArgentina277735014400

NY.GNP.MKTP.CDGross national income (GNI) (US$)BRABrazil569769984000

NY.GNP.MKTP.CDGross national income (GNI) (US$)MEXMexico559765389312

NY.GNP.MKTP.CDGross national income (GNI) (US$)PERPeru51924672512

Chart1

35.81991

30.31992

30.11993

32.19.813025046915.4904536834

36.313.175475331815.3542391915

41.113.904191154815.2003200172

38.115.096231787717.4585114009

41.316.603875064919.9026949325

47.421.323531693927.783618813

50.823.73785957429.7003277088

53.425.570

Consolidated Public Sector Total Debt/GDP

Interest/Tax

Interest/Exports

porcentajes

Argentina

ARGENTINA

Consolidated Public Sector Total Debt

19911992199319941995199619971998199920002001

Consolidated Public Sector Total Debt/GDP35.830.330.132.136.341.138.141.347.450.853.4

Interest/Tax9.813025046913.175475331813.904191154815.096231787716.603875064921.323531693923.73785957425.57

Interest million LCU3012.87759730073841.12409831734327.546304355401.52009447036194.11669140457712.45462181849113.81309799569604.7363084354

Interest/Exports15.490453683415.354239191515.200320017217.458511400919.902694932527.78361881329.70032770880

Exports

Series CodeSeries Name1991199219931994199519961997199819992000

NE.EXP.GNFS.CNExports of goods and services (current LCU)13884000256149540003841645760000019449899008250167009282847009996830939179008311219998722775899955230685900800

Sheet3

Series CodeSeries NameCountry CodeCountry Name19992000

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)ARGArgentina145294098432146172002304

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)BRABrazil243650494464237952892928

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)MEXMexico167625801728150287794176

DT.DOD.DECT.CDTotal debt stocks (EDT) (DOD, US$)PERPeru2889620070428559900672

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)ARGArgentina3386900070438342000640

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)BRABrazil6032599859269202001920

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)MEXMexico158509006848192830783488

BX.GSR.INCL.CDExports of goods and services (XGS) (US$)PERPeru901300019210055000064

NY.GNP.MKTP.CDGross national income (GNI) (US$)ARGArgentina276076593152277735014400

NY.GNP.MKTP.CDGross national income (GNI) (US$)BRABrazil510211981312569769984000

NY.GNP.MKTP.CDGross national income (GNI) (US$)MEXMexico466142068736559765389312

NY.GNP.MKTP.CDGross national income (GNI) (US$)PERPeru5001622323251924672512

Sheet5

Sheet6

MBD0017386D.xls

Sheet1

2000 Debt ratios: Argentina , Brazil, Mexico, and Peru

Total debt / GDPInterest / Tax Rev.Interest / GDPInterest / Current Rev.

Argentina44.928.23.821.1

Brazil*49.423.07.2

Mexico28.225.12.612.3

Peru45.318.72.315.4

Sources: Argentina's Secretaria de Hacienda; Brazil's Central Bank, Mexico's Ministerio de Hacienda.

*Brazil's debt includes the central bank. Brazil's figures also Include the effect of depreciation on the interest payments of total debt

Colombia169.71000000169700000

2120.920.421.821.025

Mexico Pub debt as % to GDP16.316.715.314.1

tax revenue0.1481089700161276

GDP 20001136374

interest brazil29763427294470086612336127736037302180816409317655825

8.0415426611

Nominal interest91382

Sheet2

2000

. Ingresos presupuestarios106,082,545191,027,392295,683,680392,901,613481,557,462572,899,874682,959,341781,854,676875,725,036989,527,0171,089,335,5421,187,704,05312.31

Gobierno Federal88,732,200148,705,081223,882,784300,131,486363,623,085426,376,080512,091,967581,458,887645,179,585731,279,691801,232,794868,267,688

Tributarios62,235,719103,894,938149,154,131203,889,492247,391,382292,051,720343,446,441391,874,946433,836,122487,830,295537,335,780581,703,41725.13

ISR29,133,78946,977,83466,977,12991,711,956109,577,845128,790,942150,314,420173,993,835190,909,432212,118,924232,311,023258,754,210

IVA19,686,01232,130,70044,570,90362,028,10676,566,51990,055,926108,812,222123,446,725137,320,528158,073,926175,950,992189,605,997

IEPS9,359,21516,427,80824,095,88331,284,13737,878,76545,774,60853,014,91859,185,01166,537,20874,217,50381,022,79581,544,104

Importaciones2,277,4884,606,1027,186,2189,549,89712,178,36814,964,86717,600,37720,506,08223,378,87426,435,13029,832,66832,861,386

Otros1,779,2153,752,4946,323,9989,315,39611,189,88512,465,37713,704,50414,743,29315,690,08016,984,81218,218,30218,937,720

No tributarios 1_/26,496,48144,810,14374,728,65396,241,994116,231,703134,324,360168,645,526189,583,941211,343,463243,449,396263,897,014286,564,271

Organismos y empresas 2_/ 3_/17,350,34542,322,31171,800,89692,770,127117,934,377146,523,794170,867,375200,395,790230,545,452258,247,327288,102,749319,436,366

B. Gasto neto pagado101,077,074188,954,603282,163,052367,070,664452,852,217548,346,320662,073,091757,392,653861,832,499960,656,2841,081,326,5211,248,157,222

Programable pagado61,999,518119,008,560173,093,824232,421,886293,450,138357,179,457436,951,210500,259,808570,767,268648,083,042720,076,790860,920,208

Corriente53,901,263101,561,388146,375,257197,075,769247,081,541299,517,728365,872,636415,155,343473,682,252538,220,207597,935,823714,571,716

Servicios personales 3_/34,894,65362,220,31688,707,664116,337,883144,180,448173,970,419213,580,156235,244,637264,286,659295,496,796327,931,819392,121,815

Otros gastos de operacin14,645,79529,000,82242,934,57757,232,86273,190,44388,732,375106,838,672122,904,383144,102,623167,664,102187,348,493226,030,139

Ayudas, subsidios y transferencias 4_/4,360,81510,340,25014,733,01623,505,02429,710,65036,814,93445,453,80857,006,32365,292,97075,059,30982,655,51196,419,762

Capital8,098,25517,447,17226,718,56735,346,11746,368,59757,661,72971,078,57485,104,46597,085,016109,862,835122,140,967146,348,492

Inversin fsica7,795,48716,811,50125,919,30733,937,23444,310,25255,078,62967,988,16981,420,19892,927,648105,473,616116,872,777139,356,170

Directo4,750,6049,428,28413,670,86417,426,02522,562,19627,706,45633,671,18040,625,95545,871,62152,149,39359,827,23677,141,159

Indirecto3,044,8837,383,21712,248,44316,511,20921,748,05627,372,17334,316,98940,794,24347,056,02753,324,22357,045,54162,215,011

Inversin financiera y otros302,768635,671799,2601,408,8832,058,3452,583,1003,090,4053,684,2674,157,3684,389,2195,268,1906,992,322

No programable39,077,55669,946,043109,069,228134,648,778159,402,079191,166,863225,121,881257,132,845291,065,231312,573,242361,249,731387,237,014

Costo financiero19,404,71230,517,57150,691,51564,577,84173,199,65884,999,629106,745,187126,644,093146,202,448155,501,764189,578,083201,017,062

Intereses, comisiones y gastos9,182,32920,136,24036,472,65146,526,09155,013,50966,646,68878,238,05890,718,984110,099,425119,260,836130,617,307140,499,487

Gobierno Federal7,981,68918,195,88331,980,57140,953,17748,499,34657,591,40465,671,04877,046,02991,661,65699,281,335108,787,402115,943,391

Sector paraestatal1,200,6401,940,3574,492,0805,572,9146,514,1639,055,28412,567,01013,672,95518,437,76919,979,50121,829,90524,556,096

Apoyo a ahorradores y deudores10,222,38310,381,33114,218,86418,051,75018,186,14918,352,94128,507,12935,925,10936,103,02336,240,92858,960,77660,517,575

IPAB10,000,00010,000,00013,650,00017,300,00017,300,00017,300,00027,300,00034,600,00034,600,00034,600,00034,600,00034,600,000

Otros222,383381,331568,864751,750886,1491,052,9411,207,1291,325,1091,503,0231,640,92824,360,77625,917,575

Participaciones14,266,55732,326,99445,551,02360,398,13776,224,45393,257,755106,811,215121,316,200135,771,169148,169,036163,490,800178,136,175

Adefas y otros5,406,2877,101,47812,826,6909,672,8009,977,96812,909,47911,565,4799,172,5529,091,6148,902,4428,180,8488,083,777

C. Balance presupuestario (A - B)5,005,4722,072,78913,520,62825,830,94828,705,24424,553,55320,886,25024,462,02313,892,53728,870,7338,009,021-60,453,169

D. Balance no presupuestario118,667-399,585-293,5991,348,610-1,617,104-2,819,692-1,019,313-2,444,3564,744,7842,208,170-2,801,257-143,455

E. Balance pblico (C + D) = (F + G)5,124,1391,673,20413,227,02927,179,55827,088,14021,733,86119,866,93722,017,66718,637,32131,078,9035,207,764-60,596,624

F. Recursos externos13,549,11419,908,26910,139,0212,118,238514,213-16,295,927-39,112,158-33,645,385-28,832,361-27,175,518-46,957,097-57,748,716

G. Recursos internos-18,673,253-21,581,473-23,366,050-29,297,796-27,602,353-5,437,93419,245,22111,627,71810,195,040-3,903,38541,749,333118,345,340

1_/ En 1991, 1992 y 1994 incluye Ingresos extraordinarios por la venta de Telmex y Bancos.

2_/ Ingresos y gastos netos del pago de derechos y enteros a la Tesorera de la Federacin.

3_/ No incluye transferencias estatutarias del Gobierno Federal al ISSSTE.

4_/ A partir de 2000, las Ayudas se resectorizaron a Otros gastos de operacin e Inversin fsica directa.

Fuente: Direccin de Estadstica Hacendaria, DGPH.

Sheet3

Sheet4

Sheet5

Sheet6

THE FISCAL PROBLEM : SOME OF IT WAS AN ILLUSION DUE TO THE CASH COSTS OF PENSION REFORM

Chart1

-0.3516627465

0.4495417159

0.7452567543

1.8970805041

1.7064873909

1.8366382605

2.3104566049

2.3669976936

2001

Social Security Benefits

Porcentajes

Costo de la Seguridad SocialTransferencias Netas

Data

National Non-Financial Public Sector - Cash Basis

19911992199319941995199619971998199920002001

1. Current Revenue50,05950,27149,03846,91854,64156,21755,67756,16952,917

Tax Revenue29,00731,61431,03533,17638,35240,36338,62640,67238,467

Contributions to Social Security13,34514,08413,70510,28112,20211,99010,89210,68410,257

Non tax revenue2,0412,1031,7101,3511,5062,1483,4722,0861727

Sales of Goods and Services252346322169149204197185179

State owned companies Operating income5,0161,4391,0919188522771,0731,039959

Property income3315791,0729591,5151,0541,155980895

Current Transfers012566366181262523433

Other current income669448200000

2. Current outlays44246442464747748455493705585957032600476045961424139318

State owned Cos. Consumption and Operating1232810260985098631027993501045695769030

wages762776427250721375546844735468996761

Goods and Servicies408424452482247326602477287823152269

Other61717311817765292243620

Yield2914315140874610574766618224965611027

Interest2914315040844608574566608224965611027

Interest on Domestic Debt (in local currency)362235193148248215224152184

Interest on External Debt (in foreign currency)2552291638914460549764458000950410843

Other yield013221000

Social Security Benefits125131524115628154441719917481174361743117780

Net Transferences-83211571923516349985491654567477523

Other Current Outlays01121111110

Current Transfers164411874218690194522263323540239302377223588

To the private sector325045684680444557005910641161556094

To the public sector131661413313984149031684917541174391755017427

Provinces and MCBA118091253512429133361517615833156411582315700

To the external sector2442261058489816767

Other Outlays50831890000120

3. Current Savings (1 - 2)58132794583-2452-1218-815-4370-4290-8507

4. Capital Resources66880712567517365092779401744

Privatizations5237331171375306962579145500

Others1457485376430413200257244

5. Capital Expenditure375038873218356437953767317729032774

Direct Real Investment16661215872758855888635402394

Capital Transfers199325152262276527912822248724672347

Provinces and MCBA190822362080255024992501220422182284

Financial Investments91157844114957553433

To the provinces and GCBA345028353421

Others57107563714455513331

6. Total Revenues (1 + 4)507275107850294476695537756726584555657153661

7. Total Expenses (2 + 5)479965136451673529335965360800632246336264198

8. Global Surplus (6 - 7)2731-286-1379-5264-4277-4073-4768-6792-10537

9. Surplus Before Privatizations2207-1019-2550-5639-4582-4170-7347-6936-11037

10. Primary Expenditure450824821447589483255390854139550005370653171

11. Total Primary Surplus (6 - 10)5,6452,8642,705-6571,4682,5873,4552,864490

12. Primary surplus excl. privatizations5,1212,1311,533-1,0311,1632,4918762,720-10

-2.4-4.1

Tax Collection

Total Tax Collection excl. Cap. System and R&T45,65642,20443,11748,52850,03747,64349,10247,105

Income5,8226,2396,7938,3349,4899,24010,4559,152

Gross VAT17,36617,44218,81420,47420,85718,77119,00817,182

Excises2,1462,0601,6911,5371,4821,4751,5281,367

External Trade2,8002,0122,2532,8332,8042,3032,0081,750

Fuels2,0691,7932,3383,9273,6923,5883,4783,111

Social Security13,43111,76710,41110,55110,2689,1428,9988,638

Capitalization System02,2292,8553,6964,1494,3524,3084,099

Remaining and Transitories9510063638257-9691

Others2,0238938188721,4453,1243,3253,005

Moratorium (dec. 1999)0300250

Financial Transactions00000002,650

Total Tax Collection + Cap. System and R&T45,75144,53346,03552,28654,26852,05153,31551,295

19901991199219931994199519961997199819992000

GDP68921999360180898004992226638004224236505006080257439956992258031878144272149757952292858888192298948362240283260026880285044637696

GDP in Millions68921.99936180898.004992226638.004224236505.00608257439.956992258031.878144272149.757952292858.888192298948.36224283260.02688285044.637696

19901991199219931994199519961997199819992000

5.295.926.065.675.875.856.166.12

0.000.000.00-0.350.450.751.901.711.842.312.37

GDP

Series CodeSeries NameCountry CodeCountry Name19901991199219931994199519961997199819992000

NY.GDP.MKTP.CNGDP (current LCU)ARGArgentina68921999360180898004992226638004224236505006080257439956992258031878144272149757952292858888192298948362240283260026880285044637696

Sheet3

Sheet4

Sheet5

Sheet6

THE FISCAL PROBLEM: WHEN DOES IT ARISE? ADJUSTING FOR THE ECONOMIC CYCLE

Chart10

202676.419171205251.346539202719.81249202719.81249

201938.245351206080.771847201976.915354201976.915354

201201.599395209642.271149201235.600426201235.600426

200470.372761207315.861906200500.014827200500.014827

199753.911535204050.364385199779.559843199779.559843

199065.995944200145.430741199087.896669199087.896669

198422.96252190297.100748198441.355749198441.355749

197841.639048188873.82013197856.928487197856.928487

197333.903962191397.618094197346.51613197346.51613

196906.247795183497.019315196916.405478196916.405478

196561.222391190288.728198196569.165274196569.165274

196292.95194193345.552322196298.977141196298.977141

196091.602366196980.618842196096.097431196096.097431

195945.903374197615.059828195948.936605195948.936605

195844.765544199218.324668195846.45795195846.45795

195778.165139195903.794749195778.666079195778.666079

195738.069194198050.18386195737.673024195737.673024

195717.090268202553.243491195715.66902195715.66902

195708.710249202278.700447195706.289622195706.289622

195710.84097202833.818737195707.44387195707.44387

195725.39882192966.252867195721.14856195721.14856

195759.242786185815.439382195753.874472195753.874472

195816.932859181168.697468195810.370576195810.370576

195897.058249189924.708758195889.174321195889.174321

195988.976337194536.656743195979.672111195979.672111

196078.591964199255.431155196067.522556196067.522556

196150.449363206427.795755196137.482385196137.482385

196191.457398203176.986613196176.300767196176.300767

196194.706524201237.512774196177.158318196177.158318

196157.833163208702.430079196137.611084196137.611084

196081.413293210952.500906196058.37783196058.37783

195974.138623203051.897733195948.030335195948.030335

195853.713729210422.407069195824.449204195824.449204

195742.515599204753.590406195709.954958195709.954958

195671.7914196693.989337195635.991844195635.991844

195678.592977196340.816661195639.656379195639.656379

195800.447932201960.059162195758.706331195758.706331

196075.63162186182.573544196031.33769196031.33769

196545.847864176879.625236196499.622293196499.622293

197246.701346186805.393654197199.476501197199.476501

198201.534967177880.551161198154.554174198154.554174

199427.774937178976.010381199382.012873199382.012873

200929.177759188171.193856200886.338904200886.338904

202696.945078192670.19583202659.264824202659.264824

204714.57405193608.470884204684.576223204684.576223

206960.292492201043.634483206939.815525206939.815525

209403.389736207258.094107209395.602584209395.602584

212010.008057213540.358913212018.872145212018.872145

214745.664488224628.125835214775.223009214775.223009

217578.321679224256.234443217631.204904217631.204904

220478.404366223842.629479220559.525626220559.525626

223421.78146221762.704613223537.033611223537.033611

226387.622867224036.90087226542.629237226542.629237

229355.698006238523.426278229554.103926229554.103926

232299.515283240207.707882232547.68302232547.68302

235200.405789242195.256159235505.197686235505.197686

238046.167173242707.824936238236.0975518238324.6820799

240830.804325252755.690033240686.1171935240974.40347525

243545.13391250799.989053243161.3328332243604.1420171

246190.376463254258.384049245662.0035865246214.36086025

248773.95431248998.954896248188.3912339248807.63481695

251310.259543242695.567611250740.7602477251388.88118985

253806.930532239613.163735253319.3778203253962.88491715

256269.595486241576.33381255924.5138919256531.51311045

258696.637654248300.414597258556.4411786259091.9488868

261079.064291254310.604701261215.4352012261636.5135856

263394.051004259387.262357263901.7743141264153.99026055

265618.568981264075.586282266615.7397341266630.74246405

267728.822506269506.80796269357.6155701269051.56677505

269701.891758274138.36131272127.6888527271400.45805735

271507.768901281207.954447274926.2495645273661.65055575

273123.988664284544.654153277753.5906701275820.46285805

274535.950925286042.310767280610.0081471277864.96846805

275738.049942292152.662901283495.8010168279786.5728219

276722.908752290766.610063286411.2713756281580.0961388

277499.069114283298.368856289356.724427283245.383728

278085.442842279602.715548292332.4685127284786.66299585

278506.422331276752.82833295338.8151458286210.0892854

278778.237203276691.296905298376.0790429287522.55762295

278922.058061280497.926685301444.5781569288730.86198645

278958.864739279621.885898304544.6337108289841.8049434

278912.539532274677.996571307676.5702311290863.59095855

278797.962945275771.487088310840.7155814291805.8270747

278633.992023274833.502431314037.4009974292678.3180772

278438.215082274323.048326317266.9611211293491.80812655

278227.881692273545.762244320529.7340358294258.1413129

278008.217542262638.817187323826.061302294990.6029625

ARGGDPRHPF

ARGGDPRSA

Linear Trend

Projection

Argentina: GDP and Potential GDP

Chart1

205251.346539202719.81249

206080.771847201976.915354

209642.271149201235.600426

207315.861906200500.014827

204050.364385199779.559843

200145.430741199087.896669

190297.100748198441.355749

188873.82013197856.928487

191397.618094197346.51613

183497.019315196916.405478

190288.728198196569.165274

193345.552322196298.977141

196980.618842196096.097431

197615.059828195948.936605

199218.324668195846.45795

195903.794749195778.666079

198050.18386195737.673024

202553.243491195715.66902

202278.700447195706.289622

202833.818737195707.44387

192966.252867195721.14856

185815.439382195753.874472

181168.697468195810.370576

189924.708758195889.174321

194536.656743195979.672111

199255.431155196067.522556

206427.795755196137.482385

203176.986613196176.300767

201237.512774196177.158318

208702.430079196137.611084

210952.500906196058.37783

203051.897733195948.030335

210422.407069195824.449204

204753.590406195709.954958

196693.989337195635.991844

196340.816661195639.656379

201960.059162195758.706331

186182.573544196031.33769

176879.625236196499.622293

186805.393654197199.476501

177880.551161198154.554174

178976.010381199382.012873

188171.193856200886.338904

192670.19583202659.264824

193608.470884204684.576223

201043.634483206939.815525

207258.094107209395.602584

213540.358913212018.872145

224628.125835214775.223009

224256.234443217631.204904

223842.629479220559.525626

221762.704613223537.033611

224036.90087226542.629237

238523.426278229554.103926

240207.707882232547.68302

242195.256159235505.197686

242707.824936238413.266608

252755.690033241262.689757

250799.989053244046.951201

254258.384049246766.718134

248998.954896249426.8784

242695.567611252037.002132

239613.163735254606.392014

241576.33381257138.512329

248300.414597259627.456595

254310.604701262057.59197

259387.262357264406.206207

264075.586282266645.745194

269506.80796268745.51798

274138.36131270673.227262

281207.954447272397.051547

284544.654153273887.335046

286042.310767275119.928789

292152.662901276077.344627

290766.610063276748.920902

283298.368856277134.043029

279602.715548277240.857479

276752.82833277081.363425

276691.296905276669.036203

280497.926685276017.145816

279621.885898275138.976176

274677.996571274050.611686

275771.487088272770.938568

274833.502431271319.235157

274323.048326269716.655132

273545.762244267986.54859

262638.817187266155.144623

257102.937951264252.146831

247047.519105262305.06111

251386.813548260336.9251

250252.605692258361.240478

246723.251157256385.915101

259532.516722254413.788929

ARGGDPRSA

ARGGDPRSAHPF

Argentina: GDP and Potential GDP

arg gdpsa and gdp hpf

ARGGDPRARGGDPRHPFARGGDPRSAARGGDPRSAHPFLinear TrendLinear TrendProjection

1980 Q1205121202676.419171205251.346539202719.81249202719.81249202719.81249

1980 Q2205720201938.245351206080.771847201976.915354201976.915354201976.915354

1980 Q3209929201201.599395209642.271149201235.600426201235.600426201235.600426

1980 Q4207565200470.372761207315.861906200500.014827200500.014827200500.014827

1981 Q1203844199753.911535204050.364385199779.559843199779.559843199779.559843

1981 Q2199852199065.995944200145.430741199087.896669199087.896669199087.896669

1981 Q3190504198422.96252190297.100748198441.355749198441.355749198441.355749

1981 Q4189221197841.639048188873.82013197856.928487197856.928487197856.928487

1982 Q1191032197333.903962191397.618094197346.51613197346.51613197346.51613

1982 Q2183422196906.247795183497.019315196916.405478196916.405478196916.405478

1982 Q3190228196561.222391190288.728198196569.165274196569.165274196569.165274

1982 Q4193995196292.95194193345.552322196298.977141196298.977141196298.977141

1983 Q1196381196091.602366196980.618842196096.097431196096.097431196096.097431

1983 Q2197651195945.903374197615.059828195948.936605195948.936605195948.936605

1983 Q3199030195844.765544199218.324668195846.45795195846.45795195846.45795

1983 Q4196811195778.165139195903.794749195778.666079195778.666079195778.666079

1984 Q1197129195738.069194198050.18386195737.673024195737.673024195737.673024

1984 Q2202805195717.090268202553.243491195715.66902195715.66902195715.66902

1984 Q3202116195708.710249202278.700447195706.289622195706.289622195706.289622

1984 Q4203619195710.84097202833.818737195707.44387195707.44387195707.44387

1985 Q1192047195725.39882192966.252867195721.14856195721.14856195721.14856

1985 Q2186206195759.242786185815.439382195753.874472195753.874472195753.874472

1985 Q3181046195816.932859181168.697468195810.370576195810.370576195810.370576

1985 Q4190373195897.058249189924.708758195889.174321195889.174321195889.174321

1986 Q1193812195988.976337194536.656743195979.672111195979.672111195979.672111

1986 Q2199862196078.591964199255.431155196067.522556196067.522556196067.522556

1986 Q3206041196150.449363206427.795755196137.482385196137.482385196137.482385

1986 Q4203465196191.457398203176.986613196176.300767196176.300767196176.300767

1987 Q1200898196194.706524201237.512774196177.158318196177.158318196177.158318

1987 Q2209143196157.833163208702.430079196137.611084196137.611084196137.611084

1987 Q3210502196081.413293210952.500906196058.37783196058.37783196058.37783

1987 Q4203450195974.138623203051.897733195948.030335195948.030335195948.030335

1988 Q1210046195853.713729210422.407069195824.449204195824.449204195824.449204

1988 Q2205030195742.515599204753.590406195709.954958195709.954958195709.954958

1988 Q3196433195671.7914196693.989337195635.991844195635.991844195635.991844

1988 Q4196875195678.592977196340.816661195639.656379195639.656379195639.656379

1989 Q1201286195800.447932201960.059162195758.706331195758.706331195758.706331

1989 Q2186317196075.63162186182.573544196031.33769196031.33769196031.33769

1989 Q3176927196545.847864176879.625236196499.622293196499.622293196499.622293

1989 Q4187780197246.701346186805.393654197199.476501197199.476501197199.476501

1990 Q1176330198201.534967177880.551161198154.554174198154.554174198154.554174

1990 Q2179340199427.774937178976.010381199382.012873199382.012873199382.012873

1990 Q3188602200929.177759188171.193856200886.338904200886.338904200886.338904

1990 Q4194266202696.945078192670.19583202659.264824202659.264824202659.264824

1991 Q1190413204714.57405193608.470884204684.576223204684.576223204684.576223

1991 Q2201925206960.292492201043.634483206939.815525206939.815525206939.815525

1991 Q3208403209403.389736207258.094107209395.602584209395.602584209395.602584

1991 Q4215923212010.008057213540.358913212018.872145212018.872145212018.872145

1992 Q1218685214745.664488224628.125835214775.223009214775.223009214775.223009

1992 Q2226289217578.321679224256.234443217631.204904217631.204904217631.204904

1992 Q3225760220478.404366223842.629479220559.525626220559.525626220559.525626

1992 Q4224381223421.78146221762.704613223537.033611223537.033611223537.033611

1993 Q1216370226387.622867224036.90087226542.629237226542.629237226542.629237

1993 Q2241872229355.698006238523.426278229554.103926229554.103926229554.103926

1993 Q3242646232299.515283240207.707882232547.68302232547.68302232547.68302

1993 Q4245132235200.405789242195.256159235505.197686235505.197686235505.197686

1994 Q1232945238046.167173242707.824936238413.2666081994:01:00238236.0975518238324.6820799

1994 Q2257477240830.804325252755.690033241262.6897571994:02:00240686.1171935240974.40347525

1994 Q3253468243545.13391250799.989053244046.9512011994:03:00243161.3328332243604.1420171

1994 Q4257342246190.376463254258.384049246766.7181341994:04:00245662.0035865246214.36086025

1995 Q1237968248773.95431248998.954896249426.87841995:01:00248188.3912339248807.63481695

1995 Q2248094251310.259543242695.567611252037.0021321995:02:00250740.7602477251388.88118985

1995 Q3242215253806.930532239613.163735254606.3920141995:03:00253319.3778203253962.88491715

1995 Q4244468256269.595486241576.33381257138.5123291995:04:00255924.5138919256531.51311045

1996 Q1236566258696.637654248300.414597259627.4565951996:01:00258556.4411786259091.9488868

1996 Q2260752261079.064291254310.604701262057.591971996:02:00261215.4352012261636.5135856

1996 Q3262167263394.051004259387.262357264406.2062071996:03:00263901.7743141264153.99026055

1996 Q4267020265618.568981264075.586282266645.7451941996:04:00266615.7397341266630.74246405

1997 Q1256388267728.822506269506.80796268745.517981997:01:00269357.6155701269051.56677505

1997 Q2281770269701.891758274138.36131270673.2272621997:02:00272127.6888527271400.45805735

1997 Q3284092271507.768901281207.954447272397.0515471997:03:00274926.2495645273661.65055575

1997 Q4287515273123.988664284544.654153273887.3350461997:04:00277753.5906701275820.46285805

1998 Q1271702274535.950925286042.310767275119.9287891998:01:00280610.0081471277864.96846805

1998 Q2301208275738.049942292152.662901276077.3446271998:02:00283495.8010168279786.5728219

1998 Q3293315276722.908752290766.610063276748.9209021998:03:00286411.2713756281580.0961388

1998 Q4286268277499.069114283298.368856277134.0430291998:04:00289356.724427283245.383728

1999 Q1265025278085.442842279602.715548277240.8574791999:01:00292332.4685127284786.66299585

1999 Q2286412278506.422331276752.82833277081.3634251999:02:00295338.8151458286210.0892854

1999 Q3278473278778.237203276691.296905276669.0362031999:03:00298376.0790429287522.55762295

1999 Q4283566278922.058061280497.926685276017.1458161999:04:00301444.5781569288730.86198645

2000 Q1264556278958.864739279621.885898275138.9761762000:01:00304544.6337108289841.8049434

2000 Q2285275278912.539532274677.996571274050.6116862000:02:00307676.5702311290863.59095855

2000 Q3276768278797.962945275771.487088272770.9385682000:03:00310840.7155814291805.8270747

2000 Q4278092278633.992023274833.502431271319.2351572000:04:00314037.4009974292678.3180772

2001 Q1259200278438.215082274323.048326269716.6551322001:01:00317266.9611211293491.80812655

2001 Q2284796278227.881692273545.762244267986.548592001:02:00320529.7340358294258.1413129

2001 Q3263079278008.217542262638.817187266155.1446232001:03:00323826.061302294990.6029625

2001 Q4260294257102.937951264252.146831326731.420528502295491.783679751

2002 Q1233280247047.519105262305.06111329880.384285708296092.722697854

2002 Q2262012251386.813548260336.9251333029.348042915296683.136571457

2002 Q3250451250252.605692258361.240478336178.311800121297269.776139061

2002 Q4249882246723.251157256385.915101339327.275557327297856.595329163

2003 Q1244944259532.516722254413.788929342476.239314534298445.014121767

arg gdpsa and gdp hpf

205251.346539202719.81249

206080.771847201976.915354

209642.271149201235.600426

207315.861906200500.014827

204050.364385199779.559843

200145.430741199087.896669

190297.100748198441.355749

188873.82013197856.928487

191397.618094197346.51613

183497.019315196916.405478

190288.728198196569.165274

193345.552322196298.977141

196980.618842196096.097431

197615.059828195948.936605

199218.324668195846.45795

195903.794749195778.666079

198050.18386195737.673024

202553.243491195715.66902

202278.700447195706.289622

202833.818737195707.44387

192966.252867195721.14856

185815.439382195753.874472

181168.697468195810.370576

189924.708758195889.174321

194536.656743195979.672111

199255.431155196067.522556

206427.795755196137.482385

203176.986613196176.300767

201237.512774196177.158318

208702.430079196137.611084

210952.500906196058.37783

203051.897733195948.030335

210422.407069195824.449204

204753.590406195709.954958

196693.989337195635.991844

196340.816661195639.656379

201960.059162195758.706331

186182.573544196031.33769

176879.625236196499.622293

186805.393654197199.476501

177880.551161198154.554174

178976.010381199382.012873

188171.193856200886.338904

192670.19583202659.264824

193608.470884204684.576223

201043.634483206939.815525

207258.094107209395.602584

213540.358913212018.872145

224628.125835214775.223009

224256.234443217631.204904

223842.629479220559.525626

221762.704613223537.033611

224036.90087226542.629237

238523.426278229554.103926

240207.707882232547.68302

242195.256159235505.197686

242707.824936238413.266608

252755.690033241262.689757

250799.989053244046.951201

254258.384049246766.718134

248998.954896249426.8784

242695.567611252037.002132

239613.163735254606.392014

241576.33381257138.512329

248300.414597259627.456595

254310.604701262057.59197

259387.262357264406.206207

264075.586282266645.745194

269506.80796268745.51798

274138.36131270673.227262

281207.954447272397.051547

284544.654153273887.335046

286042.310767275119.928789

292152.662901276077.344627

290766.610063276748.920902

283298.368856277134.043029

279602.715548277240.857479

276752.82833277081.363425

276691.296905276669.036203

280497.926685276017.145816

279621.885898275138.976176

274677.996571274050.611686

275771.487088272770.938568

274833.502431271319.235157

274323.048326269716.655132

273545.762244267986.54859

262638.817187266155.144623

257102.937951264252.146831

247047.519105262305.06111

251386.813548260336.9251

250252.605692258361.240478

246723.251157256385.915101

259532.516722254413.788929

ARGGDPRSA

ARGGDPRSAHPF

Argentina: GDP and Potential GDP

Sheet2

ARGGDPRHPF

ARGGDPRSA

Argentina: GDP and Potential GDP

Sheet3

Sheet4

Sheet5

Sheet6

THE FISCAL PROBLEM: WHEN DOES IT ARISE? STRUCTURAL DETERIORATION IN THE 96/98 BOOM

THE FISCAL PROBLEM: WHEN DOES IT ARISE? STRUCTURAL DETERIORATION IN THE 96/98 BOOMSTRUCTURAL PRIMMARY BALANCES

THE FISCAL PROBLEM: WHEN DOES IT ARISE? Fiscal Impulse

THE FISCAL PROBLEM: WHEN DOES IT ARISE?THE CRITICAL IMPORTANCE OF GROWTH PROSPECTS

THE FISCAL PROBLEM: WHEN DOES IT ARISE?CORRECTING FOR OVERVALUATION OF THE RER

CURRENCY BOARD AND SHOCKS:RER OVERVALUATION SINCE 97

CURRENCY BOARD AND SHOCKS:DEFLATIONARY ADJUSTMENTS UNDER FIXED PEGSFuente: Broda. AER paper and proceedings, 2001.

CURRENCY STRUCTURE OF REAL AND FINANCIAL ASSETS:TRADE STRUCTURESource: Un-Comtrade, 1999. Exports of goods.

CURRENCY STRUCTURE OF REAL AND FINANCIAL ASSETS:FDI BY COUNTRY OF ORIGIN

CURRENCY STRUCTURE OF REAL AND FINANCIAL ASSETS:DEPOSIT DOLLARIZATION

A PROBLEM OF MULTIPLE EQUILIBRIA?THE ELEMENTS OF THE PROBLEMPUBLIC DEBT SUSTAINABILITY UNTIL 2000 UNDER REASONABLE GROWTH AND INTEREST RATE PROJECTIONS, AND NO NOMINAL DEVALUATION.A LARGE FISCAL CONTINGECY ASSOCIATED WITH A SHARP NOMINAL DEVALUATION:FIRMS AND HOUSEHOLDS (AND THE FINANCIAL SECTOR) WOULD BE BANKRUPT WITH A NOMINAL DEVALUATION DUE TO HIGH OPEN EXPOSURES IN FOREIGN CURRENCY.THEY MIGHT HAVE ADJUSTED UNDER A DEFLATIONARY RER ADJUSTMENTWAS IT POSSIBLE TO HAVE DEFAULT WITHOUT DEVALUATION?DEFAULT WOULD BANKRUPT THE BANKS (DUE TO LARGE HOLDINGS OF PUBLIC DEBT) AND LED TO DEPOSIT RUNS

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT?DOUBTS ABOUT NOMINAL DEVALUATION LED TO DOUBTS ON SOLVENCY DUE TO HIGH FISCAL CONTINGENCY ASSOCIATED WITH DEVALUATIONDOUBTS ABOUT FISCAL SOLVENCY DUE TO CHANGED GROWTH EXPECTATIONS UNDER A PROTRACTED DEFLATIONARY ADJUSTMENT LED TO DOUBTS ON CB SUSTAINABILITY DUE TO EFFECTS ON BANKS AND EVENTUAL MONETARY EMISSION TO FINANCE THE DEFICITS

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT? CURRENCY RISK BECOMES VOLATILE SINCE MARCH 2001

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT?BUT BECOMES IRREVERSIBLE SINCE JULY 2001

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT? ..WHEN THE GOVERNMENT IS CUT FROM CAPITAL MARKETS AND THERE IS A SHARP DEPOSIT RUN

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT? THE DEFLATIONARY ADJUSTMENT OR A CAPITAL FLOWS REVERSAL?

A PROBLEM OF MULTIPLE EQUILIBRIA?WHAT TRIGGERED THE SHIFT?CAPITAL FLOWS FALL FOR ARGENTINA BUT NOT FOR OTHER COUNTRIES IN 2001

ARGENTINA AND BRAZIL:ARGENTINA NEEDED EXCHANGE RATE FLEXIBILITY TO ADJUST TO SHOCKS IN BRAZIL, NOT VICEVERSA...A CONTRAST WITH NAFTA

Regresion de cointegracion:

PIB Argentina = -22.14 + 5.67* PIB Brasil (3.77) (0.80)

Nota: Errores standard en parentesis. a: constante b: coeficiente de cointegracion

Las dos series convergen si:

a>0 y b

HOW MUCH CONTAGION? Cross-market Correlations with Argentina (ventana de 60 das correlacin de los cambios)

HOW MUCH CONTAGION? Cross-market Correlations with Argentina(ventana de 60 das correlacin de los cambios)

HOW MUCH CONTAGION? Tasa de Cambio Nominal y el spread Argentino(ventana de 60 das correlacin de los cambios)

SUMMARYTHE ARGENTINE CRISIS WAS DUE TO TWO FACTORS:A FRAGIL FISCAL SITUATION INHERITED FROM THE BOOM YEARS (96/98), EXACERBATED BY THE REQUIRED RER DEPRECIATION AFTER 98THE SHOCKS AFTER 98 REQUIRED:EITHER A PROTRACTED DEFLATIONARY ADJUSTMENT (Which neither the Argentine society had the stomach to support, nor Wall Street the patience to finance)OR A NOMINAL DEVALUATION FOLLOWED BY A BANK CRASH AND A DEFAULT (In which case everyone will end up worst)

LESSONSAVOID FISCAL LAXITUDE IN BOOMSUSE PRIMARY STRUCTURAL FISCAL BALANCE GOALSOBTAIN SURPLUSES IN BOOMSKEEP A FLEXIBLE EXCHANGE RATE REGIME AND AVOID DOLLARIZATIONIF DOLLARIZED AND SUBJECT TO ASSYMETRIC SHOCKS, EITHERLEAVE THE PEG AND ATTEMPT DE-DOLLARIZATION IN GOOD TIMES, OR DOLLARIZE FULLY AND ACHIEVE STRONG FISCAL STRUCTURAL SURPLUSES, CONSERVATIVE PRUDENTIAL REGULATION AND LABOR MARKET FLEXIBILITY

End

Guillermo: This slide comes from the presentation by Sturzenegger in LAC meets the Markets III. There is no reference to the dates for these figures.GP: Ya pondo la serie de Intereses/ExportsTop-line: linear trendBottom-line: trend component of Hodrick-Prescott FilterMiddle: Midway (average of the two)

Guillermo: no hay (de acuerdo con Alejandro Guerson) una serie consistente para depositos en dolares a comienzos de los 90sGRAFICA CON RIESGO CAMBIARIO, RIESGO PAIS (SPREAD) Y NEWS (99/00 Y 01) luis- . GRAFICA CON RIESGO CAMBIARIO, RIESGO PAIS (SPREAD) Y NEWS (99/00 Y 01) luis- . Will be done. Hacer esto solo desde 1999.