Argentine Peso Research Articles

Macroeconomic Determinants of the Stock Market Index for a Major Latin American Country and Policy Implications

Applying the exponential GARCH model and based on a quarterly sample during 1998.Q1-2011.Q2, we find that the Argentine stock market index is positively associated with real GDP, the ratio of M2 money supply to GDP, the peso/USD exchange rate and the U.S. stock market index. It is negatively influenced by the money market rate, government spending as a percent of GDP and the inflation rate. Hence, a strong domestic economy, a lower interest rate, an increased money supply as a percent of GDP, lower government spending as a percent of GDP, depreciation of the Argentine peso, a lower inflation rate, or a robust U.S. stock market would help the Argentine stock market.

The 'Necessity Defense' and the Emerging Arbitral Conflict in its Application to the U.S.-Argentina Bilateral Investment Treaty

AT the turn of the twenty-first century, while the Internet boom was generating incredible wealth in developed countries, Argentina experienced one of the worst economic and fiscal crises in its history. Between 2001 and 2002, output fell 20 percent over three years, inflation reignited, the government defaulted on its debt, the banking system was largely paralyzed, and the Argentine peso reached lows of 3.90 pesos per U.S. dollar. In the context of other regional economic troubles, such as the Asian crisis of 1997-1998, the Brazilian devaluation in early 1999 and the steady appreciation of the dollar from 1998 to 2001, the overvaluation of the Argentine peso led to a structural crisis. Although there are recurring themes in the analyses of the events leading up to the crisis, blame cannot be assigned to any one individual or entity. The government of Argentina is ultimately responsible for its own fiscal policies, including, among others, the privatization of public utilities. In retrospect, the International Monetary Fund (IMF) concluded that “the crisis . . . . was the result of economic forces that were difficult to reverse in the context of Argentina's existing vulnerabilities,” including unmanageable public debt, the fixed currency board, and structural weaknesses that had built up during the 1990s. By 2001, the IMF concluded almost no strategy would have succeeded absent sovereign debt restructuring of Argentina's public debt burden. The IMF is not blameless either, having made mistakes both before and during the crisis. Although it expressed reservations at various times, the IMF backed Argentina throughout the 1990s, and in 1998, the IMF went so far as to say that Argentina's economic policy was ‘the best in the world,’ despite its deep depression. During the crisis, the IMF delayed its support, heightening foreign investors' perception of risk. The international financial community also shares some of the blame. The favorable financial expectations promoted by institutions like the IMF created a tremendous flow of foreign capital into Argentina; its subsequent flight was one of the biggest contributing factors to the crisis. The United States was particularly indifferent to the crisis. The administration of President George W. Bush imposed high tariffs on Argentine exports and refused to adjust the tariffs during the crisis yet at the same time provided tremendous support to the government of Turkey, which was in a similar crisis but was strategically more important for the United States' own economic and political interests. The crisis broke with the flight of private investment, which fell by more than $3.6 billion in the last two days of November 2001. On January 3, 2002, President Eduardo Duhalde, the fifth president in three weeks, confirmed a moratorium on Argentina's debts and announced he would negotiate with private creditors. Three days later, the government enacted the Public Emergency and Exchange Regime Reform Act (Reform Act), declaring a state of public emergency and delegating social, economic, administrative, and financial and exchange powers to the Executive. The Reform Act provided for the renegotiation of government contracts and established a commission to monitor the actions taken by the executive in accordance with the Act. The Reform Act resulted in a flood of requests for arbitration at the International Centre for the Settlement of Investment Disputes (ICSID) at the World Bank in Washington, D.C. These requests were filed by foreign corporations seeking to recover for breach of contract under their respective country's bilateral investment treaty with Argentina. As of December 8, 2006, there were thirty-four cases currently pending against Argentina in ICSID. Eight have been resolved. Argentina invoked the controversial defense of necessity in two cases brought by United States corporations; one arbitral panel accepted the defense, and one did not. This article analyzes the cases to determine which panel was correct within the context of established customary law and state practice regarding the necessity defense or necessity doctrine.

Generalized cost-effectiveness analysis of a package of interventions to reduce cardiovascular disease in Buenos Aires, Argentina.

BackgroundChronic diseases, represented mainly by cardiovascular disease (CVD) and cancer, are increasing in developing countries and account for 53% of chronic diseases in Argentina. There is strong evidence that a reduction of 50% of the deaths due to CVD can be attributed to a reduction in smoking, hypertension and hypercholesterolemia. Generalized cost-effectiveness analysis (GCE) is a methodology designed by WHO to inform decision makers about the extent to which current or new interventions represent an efficient use of resources. We aimed to use GCE analysis to identify the most efficient interventions to decrease CVD.MethodsSix individual interventions (treatment of hypertension, hypercholesterolemia, smoking cessation and combined clinical strategies to reduce the 10 year CVD Risk) and two population-based interventions (cooperation between government, consumer associations and bakery chambers to reduce salt in bread, and mass education strategies to reduce hypertension, hypercholesterolemia and obesity) were selected for analysis. Estimates of effectiveness were entered into age and sex specific models to predict their impact in terms of age-weighted and discounted DALYs saved (disability-adjusted life years). To translate the age- and sex-adjusted incidence of CVD events into health changes, we used risk model software developed by WHO (PopMod). Costs of services were measured in Argentine pesos, and discounted at an annual rate of 3%. Different budgetary impact scenarios were explored.ResultsThe average cost-effectiveness ratio in argentine pesos (ARS$) per DALY for the different interventions were: (i) less salt in bread $151; (ii) mass media campaign $547; (iii) combination drug therapy provided to subjects with a 20%, 10% and 5% global CVD risk, $3,599, $4,113 and $4,533, respectively; (iv) high blood pressure (HBP) lowering therapy $7,716; (v) tobacco cessation with bupropion $ 33,563; and (iv) high-cholesterol lowering therapy with statins $ 70,994.ConclusionAgainst a threshold of average per capita income in Argentina, the two selected population-based interventions (lowering salt intake and health education through mass-media campaigns) plus the modified polypill strategy targeting people with a 20% or greater risk were cost-effective. Use of this methodology in developing countries can make resource-allocation decisions less intuitive and more driven by evidence.

Dengue in Argentina: an economic analysis of the impact of the 2009 epidemic.

The present study estimates the economic burden associated with the cases of dengue recorded during the 2009 Argentine epidemic. Among the costs considered are the medical costs necessary for the treatment of those affected and the opportunity costs for those who stopped working or studying because of the disease. In order to assess the costs of the disease, at the end of 2009 an ad-hoc survey was carried out in 201 households where people that had contracted dengue during the 2009 epidemic lived. The results allow us to estimate between 26 to 40 million Argentine pesos (6 to 9 million US dollars) as the total cost of the recorded cases. The regions in the north of Argentina bore the highest economic burden of the disease (more than 90% of the total burden). For all regions, the social cost of one dengue case accounts for more than 40% of the average monthly net individual income.

Electricity reform in Argentina: Lessons for developing countries

Argentina was one of the first countries in the world to implement a comprehensive reform of its electricity sector. Among developing countries only Chile has had a comparably comprehensive and successful reform. This paper traces the history of the Argentine reform, which began in 1992, and assesses its progress and its lessons. We conclude that the reform was very successful prior to the collapse of the Argentine peso in early 2002. We suggest lessons for the generation, transmission and distribution (and retailing) sectors, as well as the economic regulation of electricity and the general institutional environment. We note that the achievements of the sector have been severely strained by the government's poor energy policy since the crisis.

Pathways Through Financial Crisis: Argentina

By the end of 2001, Argentina faced economic recession, a collapse in its banking system, and an external sovereign debt crisis. While preemptive action earlier in the year might have made one or more of these crises less severe, preemption was a political orphan at home and abroad. The country's long-standing relationship with the International Monetary Fund brought with it a mutual dependence: the IMF had come to embrace Argentina as a symbol of the success of its policy advice, and Argentina had come to rely on the IMF's endorsement and occasional financial support to navigate the choppy international markets. That relationship deepened along with Argentina's growing difficulties in the run-up to default. IMF support was used to put off a correction of the overvalued currency and to postpone a major debt restructuring. A new Argentine policy regime--and a new, more adversarial relationship with the IMF--emerged only after devaluation and default. KEYWORDS: Argentina, financial crises, banking crises, debt restructuring, International Monetary Fund. ********** Argentina's relationship with the International Monetary Fund (IMF) has been remarkably long-standing and intense. For fourteen of the twenty years preceding Argentina's crisis in 2000, its economic policy operated within an IMF program. Even after the initial success of its currency board arrangement and debt restructuring in the early 1990s, Argentina relied on the IMF's endorsement and occasional financing to navigate choppy international markets. As the IMF came under criticism for its handling of Asia's financial crisis, it set aside early doubts about Argentina's currency board arrangement and embraced the country as a symbol of the success of IMF policy advice. When external shocks left the Argentine peso overvalued at the end of the 1990s, neither Argentina's political system nor its relationship with the IMF could adjust successfully to a financial crisis that proved far deeper than either Argentina's elite or the IMF had recognized. Between 1999 and 2001, Argentina's economic slump transformed into a deep financial crisis. Two theories for Argentina's malaise dominated the policy debate. One held that Argentina was suffering from a crisis of confidence. Another held that the crisis was mostly fiscal. Both theories were too simplistic. They ignored the central importance of an overvalued currency and the heavy use of the dollar in domestic financial contracts. They also failed to recognize the extent to which the system (Argentina's currency board arrangement) had become an organizing device for Argentina's politics--not just an anchor for monetary policy--and how access to external financing had provided the critical glue that held together the political economy of convertibility. (1) Argentina's political system was unwilling to act preemptively to reduce the scale of what in many ways was an unavoidable crisis. At no time was there a political consensus to incur the costs of exiting convertibility immediately to avoid a bigger, deeper, and more costly exit later. Neither was there a consensus to shrink Argentina's economy and drive down wages and prices to abide by the constraints of a currency board, particularly once those constraints started to bite in the face of reduced capital inflows. Argentina's leaders preferred to hope that its difficulties were temporary: they drew on IMF financing, spent reserves, and then resorted to increasingly desperate attempts at financial engineering to postpone a payments crisis. Default and devaluation did not immediately bring political consensus on how to allocate financial pain. A desire to avoid probable losses transformed into an inability to allocate losses already incurred and demands for compensation from all sides. All the major players initially hoped that someone else would get stuck with the bill. The denouement of Argentina's crisis turned out to be as protracted as its buildup. …

The Effects of Unequal Size

We argue that successful economic integration requires a regionally preponderant country that acts as a provider of goods. However, when a large member acts in a costly unilateral manner, regional integration suffers because of the asymmetric effects on smaller members. In contrast, when smaller members act in a costly unilateral manner, the preponderant power is likely to absorb costs. We propose to test these hypotheses by using the case of the Common Market of the South (MERCOSUR) during three crises: the attempted military coup in Paraguay in 1996, the 1999 devaluation of the Brazilian real, and the 2002 devaluation of the Argentine peso. Evidence shows that economic integration declined with costly Brazilian unilateral actions but improved when Brazil provided goods.

Revisiting the Unit Root Hypothesis and Structural Break: Asia and Emerging Economies Foreign Exchange Markets

This study examines the stationary of ten Asian and for emerging Foreign Exchange (FX) rates during the 1990s. The paper employs the Augmented Dickey-Fuller (ADF) unit root test to the following FX rates: Hong Kong Dollar (HKD) Japanese Yen (JPY), South Korean won (KRW) new Taiwan dollar (TWN), Chinese Renminbl (CHR), Indonesia Rupiah (IDR), Malaysian Ringgit (MYR), Singapore Dollar (SGD), Thai Bhat (THB), Philippines Peso (PHP), Argentine Peso (AGP), the Brazilian Real (BRR), Mexican Peso (MXP) and Russian Rouble (RUR). Structural break is taken into account for series found to be non-stationary using the[1] test. The results show that exchange rate series were found to be non-stationary except for the Chinese Renminbi, Mexican and Argentina pesos. Furthermore, the robustness test indicates that the ADF test is robust across different data frequencies for most series we examined finally; we find the choice of structural break data is crucial in testing that stationary for most series examined.

Commodity export dependence and the choice of exchange rate regime: Viewing the poles from Saudi Arabia

As financial crises followed capital account opening in the 1990s the hard peg of a currency board regime was seen as the remaining ‘polar’ alternative to flexible exchange rates. With the Argentine peso devaluation of early 2002 suggesting that the fundamental requirement may be peg abandonment through either floating or ‘dollarisation’, the issue as it confronts highly open LDSs reliant on a narrow export base of primary commodities has been substantially neglected. Under pressure to increase financial openness, and with exchange rate variability posing a threat to their price level stability, the study asks whether pegging could remain an effective choice for such economies. Saudi Arabia has combined extreme commodity dependence with financial openness under a rigid peg and her experience is examined for the wider lessons it may contain. While sensitive to fluctuating confidence in the exchange rate evidence on demand for the Riyal suggests that, with appropriate policy support, currency pegs remain appropriate for commodity-dependent economies.

Argentina's health system devastated but health workers rally.

The financial crisis of the past year has had a devastating impact on health care in Argentina. With an unemployment rate of about 20% and an estimated 19 million of the population of 37 million living below the national poverty line, public clinics and hospitals have been swamped with patients who can no longer participate in private insurance systems sponsored by unions and employers. Speakers at the Fifth Argentine Health Congress, held in August in Mendoza, painted a stark picture. An estimated 18 million Argentines now have no medical coverage and must depend on the overburdened public health system. The Argentine peso had been on a par with the US dollar for a decade but with the devaluation it is now worth little more than 25 US cents. This has caused the price of imported drugs and medical supplies to skyrocket and supplies to fall. "Practically 80% of the supplies we use are imported, from a simple glove to the latest antibiotics," Francisco Diaz, president of the Association of Private Clinics Sanatoriums and Hospitals, told the newspaper La Nacion. Ruben Torres, director of Health Services in the Health Ministry, announced that annual per capita spending on health care in Argentina had dropped from US$ 650 to US$ 184 because of the devaluation, a drop from one of the highest rates in Latin America to one of the lowest. Dr Horacio Mingrone of the F.J. Muniz Hospital in Buenos Aires said in an interview that patients are waiting longer to seek medical treatment because of their economic situation. "Their first priority is to find a way to live, to eat, the care for their families," he said. "Health comes second." Dr Mingrone, whose hospital specializes in infectious and respiratory diseases, said that the patients who come to the hospital now are sicker than ' they were in the past. For example, 40% of the HIV-positive patients he sees for the first time already have AIDS. He added that patients who could have been managed as outpatients with highly active retroviral therapy (HAART) if they had gone to a doctor earlier, now often are admitted with opportunistic infections, such as hepatitis C and lung diseases. He also noted that doctors in the Buenos Aires province and the capital itself are seeing more cases of diseases associated with poverty and poor hygienic conditions, such as hantavirus and leptospirosis, which formerly occurred primarily in areas outside the capital region. People suffering from chronic illnesses such as diabetes and AIDS have had great difficulty obtaining the imported drugs they need to maintain their health. In May, the Argentine Society of Nephrology said medical care of the approximately 17 000 Argentines with chronic kidney disease was seriously compromised because of the increase in costs for dialysis supplies. Recipients of transplanted organs have reported that it has become much more difficult to obtain the immuno-suppressant drugs they need to prevent their bodies from rejecting the new organs. And new transplant surgery is often postponed. Other types of non-emergency surgery have been postponed as well. The construction workers' union insurance plan put 20 pacemaker operations on hold in May. In April, the newspaper Clarin reported that Posadas National Hospital in Buenos Aires province had to suspend scheduled operations. In several provinces, an increase in low-weight births has been reported, an indication that the mothers were undernourished. In Mar de Plata, 13% of the babies born in public hospitals in 2001 weighed less than 2.5 kilos, La Nacion newspaper reported in July. It quoted Dr. Liliana Racciati, an obstetrician in charge of the high-risk ward at the Inter-zonal Specialized Maternal-Child Hospital there, as predicting that the percentage would be higher this year. And psychiatrists in Buenos Aires told Inter Press Services of an increase in the number of people see king psychiatric help because of stress related to unemployment and an inability to support their families. …

Argentina and the Fund: From Triumph to Tragedy

The catastrophic crisis of late 2001 and early 2002 marks the tragic end to Argentina's initially successful, decade-long experiment with sound money and market-oriented economic reform. The IMF consistently supported Argentina's stabilization and reform efforts in the decade leading up to the current crisis, and often pointed to many of Argentina's policies as examples for other emerging market economies to emulate. In this policy analysis, former IMF Chief Economist Michael Mussa addresses the obvious question: What went wrong in Argentina and what important errors did the IMF make in either supporting inappropriate policies or in failing to press for alternatives that might have avoided catastrophe? He emphasizes that the persistent inability of the Argentine authorities at all levels to run a responsible fiscal policy--even when the Argentine economy was performing very well--was the primary avoidable cause of the country's catastrophic financial collapse. The IMF failed to press aggressively for a more responsible fiscal policy. Mussa also addresses the role of the Convertibility Plan, which linked the Argentine peso rigidly at parity with the US dollar and played a central role in both the initial success and ultimate collapse of Argentina's stabilization and reform efforts. While the IMF accepted this plan as a basic policy choice of the Argentine authorities so long as it remained viable, it erred in the summer of 2001 by extending further massive support for unsustainable policies, rather than insisting on a new policy strategy that might have mitigated some of the damage from a crisis that had become unavoidable.Mussa moves on to discuss what needs to be done to restore economic and financial stability in Argentina and begin the process of recovery, including the proper role of the IMF and the international community. He also examines what the IMF can do to avoid repeating the types of mistakes it made in the tragic case of Argentina.

Relative Value in Clear Present Danger

In this paper, we propose two simple models to price options on a pegged currency such as Argentine Peso (ARG) whose time evolution is almost exclusively a discrete jump process. The first model is a one-step binomial tree model which expresses any vanilla option as a linear combination of an at the money forward (ATMF) option, a cash position, as well as a bond denominated in local currency. As a result, any mis-pricing of the option on a relative basis can be arbitraged readily. In the second model, we extend the one-step binomial tree to a multi-step binomial tree and derive a pricing equation in the continuous time limit based on risk-neutral assumptions. In both models, we point out the existence of a crucial relation between the jump related parameters and the spread between the domestic and foreign interest rates as a consequence of no-arbitrage pricing.

DOLLARIZATION FOR ARGENTINA

In January 1999, President Carlos Menem suggested replacing the Argentine peso with the U.S. dollar. President Menem's announcement has sparked a debate throughout Latin America and Eastern Europe about what has been termed “dollarization.” That debate prompted U.S. Treasury Secretary Robert Rubin to deliver a major policy speech on alternative exchange‐rate regimes on April 21, 1999 and the U.S. Senate Banking Committee to hold dollarization hearings the following day featuring Fed Chairman Alan Greenspan and Deputy Secretary of the Treasury Lawrence Summers.This article presents a case for officially dollarizing Argentina. Dollarization is not new. Unofficial dollarization is widespread in emerging market countries; in fact, as much as 70% of the stock of U.S. dollars now circulates abroad. Twenty‐eight countries and dependent territories are officially dollarized. Although official dollarization would result in Argentina losing seigniorage of about 0.22 percent of GDP, the author estimates that this cost would be more than offset by a reduction in interest rates that would increase Argentina's trend rate of GDP growth by about two percent.After debunking the most common criticisms of dollarization, the article closes by offering recommendations about the specific form of dollarization and presenting a detailed dollarization statute for Argentina. The author proposes a competitive currency regime for Argentina, one in which all foreign money would be legal tender.

Financial Policies of Manufacturing Firms During Inflation and Revolution—the Argentine Case

Overthrow of the Argentine dictatorship of Juan Peron in September of 1955 was followed by over a decade of political upheaval, high inflation, sporadic balance of payments crises, and periodic devaluation of the Argentine peso. In this seemingly inauspicious environment, surprisingly, the manufacturing capacity and output of Argentine owned industrial companies increased significantly.© 1970 JIBS. Journal of International Business Studies (1970) 1, 1–13

International Monetary Fund

During February 1957 the government of Egypt purchased from the International Monetary Fund $15 million with Egyptian pounds. The government of India, during the same period, entered into an exchange transaction and stand-by arrangement with the Fund in a total amount of $200 million. The transaction provided for the purchase of $127.5 million from the Fund with Indian rupees. The Fund was to transfer $60 million of that amount immediately, and $67.5 million after 30 days. A stand-by arrangement to become effective on the date of the second transfer was to permit India to purchase from the Fund during the following twelve months currencies equivalent to an additional $72.5 million. Under the stand-by arrangement concluded in October 1956, France had by the middle of March made two purchases from the Fund with French francs. The first purchase, of $40 million, was made on February 14, and the second, of $60 million, was made on March 14. In April 1957, the government of Argentina purchased from the Fund $75 million with Argentine pesos. Other purchases from the Fund during the period under review included $10 million by Cuba (under a stand-by arrangement), $2.5 million by Honduras, and $0.5 million by Paraguay. In February El Salvador repurchased colones equivalent to $2.5 million; other repurchases were $3.3 million by Finland and $1.8 million by Denmark. At the request of the government of Peru, the Fund on February 15 extended for one year a stand-by arrangement enabling Peru to draw currencies up to the equivalent of $12.5 million.

The depreciation of the peso and trade between Italy and Argentina

The article describes the main outlines of the Argentine peso crisis, pointing out its nature and origin, diagnosing it as one of the “growing pains” of a country engaged in carrying out a bold plan of rapid industrialisation, and notes that the possibilities of a favourable settlement depend largely on a more balanced development of the economic potential of the country, and on securing the necessary contribution of foreign labour forces. In the last part of the article, the author examines the economic and commercial relation between Italy and Argentina, the opportunities offered for Italian emigration, the obstacles that hinder its development, and the strictly complementary character of the Italian and Argentinian economies.JEL: O14, J22, F31, F10

Argentine Trade under Wartime Conditions

HE political situation in the Argentine Republic has obscured an interesting economic one: for the last two or three years the country has been enjoying unprecedented prosperity. A moderate though generally steady upward trend that began in I932' has increased at a noticeably greater rate since I940. In particular, the foreign trade balance has built up rapidly in Argentina's favor since the war began. Official figures for the first io months of 1943 give a total value of exports of 1,756,389,ooo Argentine pesos (the present exchange value of the peso is about $0.25 United States currency), as against a total value of imports of 780,iI6,ooo pesos, a balance in favor of Argentina of 976,273,ooo pesos. This is in marked contrast with a favorable balance of some 392,000,000 pesos during the first io months of 1942.2 The influences of the war on Argentine economy may be considered under two headings:3 (i) transformations in the structure of national production and (2) transformations in the structure of foreign trade. The first of these involves the production of an immense amount of food to satisfy the needs of distant populations and combatants-for the United Nations are fighting their European battle partly on Argentine meats and other foodstuffs. It involves also the expansion of industrial activities and the increase of domestic consumption. The second influence involves complete reorganization of the foreign commerce, because of the disappearance of traditional providers and consumers. Argentina can no longer obtain certain imports, nor can it ship the same goods to the same customers by the same means. The country has therefore found it necessary to build up its own merchant marine. Further, Argentina has paid off a part of its external debt and has amassed immense credit balances.