Analysis of Argentina Economic Recovery - Research Paper Example

Resent observation made by IMF indicates that Argentina has been able to recovery from financial recession. This essay analyses Argentina’s managed floating exchange rate regime from the recovery of economic crisis to the Present. Economists have mentioned many factors that contributed to Argentina financial turmoil. Some economists have cited Argentina economic policies as a factor that contributed to financial recession (Hornbeck). Analysts have claimed that IMF had questionable policy advice and lending to Argentina because it overlooked risks that Argentina was likely to face (Saxton).

It is apparent that numerous lending programs that international community gave to Argentina during the recession aggravated the problem. Economists believe that fiscal policies of Argentina plunged it into the financial crisis. Research indicates that Argentina had been using fiscal largesse to counter economic problems. In this case, Argentina printed currency to cover its monetary shortfalls or applied other creative methods to expand its money supply. This policy led to indebtedness and high inflation.

Argentina adopted convertibility fiscal policy, which controlled exchange rate against the American dollar. Research indicates that the policy worked well until 1995 when Argentina economic policies could not protect the country from economic depression (Akkerman & Teunissen). Analysts have argued that convertibility fiscal policy failed because the plan lacked thresholds required to contain convertibility plan at national and provision levels. Research indicates that Argentina’s debts grew from 30% to 60% (Saxton).

The debt figures show records collected from 1995 to 2001. These changes led to overvaluation of Argentina’s currency, which affected Argentina’s competiveness in the world market due to reduction in its ability to export, which further plunged public revenue. With a strengthening dollar fiscal balances of Argentina deteriorated giving room for regional trading countries a trading opportunity over Argentina. Commodity prices fell accelerating a fall in public revue. It is apparent that a fall in domestic trade triggers an increase in inflation level.

Research indicates that Argentine fiscal deficit in 1993-2001 had an average of 1.3 percent of the country’s GDP (Weisbrot, et.al). Increase in fiscal deficit took place in 1998 when Argentina adopted joint action on recession, which focused on higher interest rates and revenues. Recovery plan from the financial turmoil meant that Argentina had to change to fiscal policies in order to meet challenges in the dynamic market. Argentina debt restructuring began in 2002 when Argentina negotiated with investors and IMF to cut down some of their debts (Akkerman & Teunissen).

Negotiation did not yield much because IMF did not provide solution, which could leverage on Argentina’s economic turmoil. Argentina refuted its agreement with IMF and entered into one term agreement with SEC to settle debts of private creditors. The commitment made by Argentina to recover from debts that it had incurred got a backup from Argentine legislative move, which restricted Argentina from incurring more debts on better terms. Argentine government developed policies, which improved import substitution as a move to improve trade in the country.

The central bank moved in to control