Should We Cry For Argentina

Question 1: Argentina’s peso was linked to the U.S. dollar through a currency board for 10 year before it was cut loose. Why did Argentina peg its currency to the dollar in the first place?
Answer: In the initial time of 20th Century, Argentina was one of the wealthiest and successful economies in the world. Situation started changing after World War I, Argentina started undergoing slow economic growth rate because of bad policy, political gridlock and adverse change in trade. In 1970’s, Outbreak of oil crises concluded severe debt crises of 1980’s in Latin America. Government spending was more than the tax, market borrowing, which ultimately gave movement to inflation.

Since 1980 Argentina was badly suffering from heavy debts and fast growing inflation. In 1989, inflation peaked to 5000 %, GDP lowered down by 10% from 1989 and 20 % fall on per capita GDP. In order to stabilize the growing inflation, the convertibility plan of 1991, fixed a peg of the Argentina currency peso against the dollar which means one peso to one dollar. This laid the foundation for exchange-rate stabilization. This helped Argentines to freely convert their pesos into dollars under currency board and increased bank deposits and loans in dollar became extensive.
The main reason behind this implementation was to increase people confidence on Argentina currency after way long inflation. Idea was fixing the exchange rate which shows stabilization in inflation and thus increased flow of capital in Argentina, this step helped to increase the wages and standard of living. Another benefit witnessed by this step was cheaper import. It reduced the cost of import and so more goods were getting imported in the same price. Post implementation, during the period of 1991 and 1997, Argentina observed an economic growth. However, with the increasing import, export became