Institutional causes of Argentina’s unsustainable public debt and economic instability
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In the Nineties, Argentina implemented a series of neo-liberal policies and a currency board to end a period of hyperinflation and regain access to the international capital markets. The system collapsed in 2001 when Argentina sunk into a severe depression and economic crisis, which ended in the largest sovereign debt default in history. Three years later, the Argentine government renegotiated and offered bondholders a meager 30% of the original face-value of the bonds. Although in the years following the crisis Argentina experienced low inflation and high GDP growth, today Argentina faces double-digit inflation and public debt levels above 50 percent of GDP. In this paper I find that behind Argentina’s economic problems lie institutional weaknesses, including severe corruption, the federal-provincial revenue-sharing system, and the absence of the rule of law. Argentina must first address these institutional problems before it can hope for sustained economic recovery and proper public debt management.