Government Coalitions and the Viability of Currency Boards: Argentina under the Cavallo Plan

Abstract

In April 1991, the Argentine government initiated the central component of yet another program to stabilize an economy still suffering from continuing bouts of rampant inflation. This effort, unlike its numerous predecessors, which had cut, but not defeated, high inflation, proved a rapid and stunning success. Designed and implemented under the guidance of the new Minister of Economy Domingo Cavallo, the “Cavallo Plan” cut the monthly rate of inflation from 11% (in March 1991) to only 1.3% in August and then to just 0.6% by December of that year. While consumer prices rose 172% in 1991, they increased only 4% in 1994 (see Table 1).