EXCHANGE RATE AND SUSTAINABLE DEVELOPMENT IN ARGENTINA

JULIO EDUARDO FABRIS, PABLO JULIO LOPEZ Y JOSÉ VILLADEAMIGO

Kingston University, Londres (Inglaterra)

Conferencia; AHE conference 2009; 2009

Association for Heterodox Economics

At the moment, a debate regarding the role of the real exchange rate on growth and development in Argentina, is taking place. Opposite the Keynesian view of the neoclassical synthesis (Mundell-Fleming model) that sustain that a high real exchange rate encourages the growth of the economy, in the 60s emerged in Argentina a structuralist critique to that vision, which explained the recessive nature of those years devaluations (Díaz Alejandro, 1963; Braun and Joy, 1968; Diamand, 1972; Canitrot, 1975 and Porto, 1975 ). From those works on, the idea that a real devaluation has a negative effect on the activity level became the prevailing view in the economy studies. However, the growing experience that took place in Argentina for the last six years (since the forced devaluation of the peso, which followed the 2001 crisis) has changed this view. Some economists, who identify themselves with structuralism, have recently proposed a policy of real exchange rate ‘stable and competitive’ (that is to say, high) to promote employment, revising the old structuralist argument (Frenkel and Rapetti, 2007; Frenkel, 2006). These changes in the evaluation of the real exchange rate effects in the economy, has revived the debate on the topic, which were reflected in some arising studies from different approaches (Keifman, 2005; Iñigo Carrera, 2008 and Nicolini Llosa, 2007). In Argentina, as well as in other developing countries, the exchange rate is linked to the production and export profile of the economy. This is the phenomenon known as the ‘natural resource curse’, also called ‘Dutch disease’ (although some authors point out that the two concepts refer to different processes). That is, specialization in primary goods production and export, where the country is relatively more efficient. At the same time, and due to their high productivity, these sectors promote a level of exchange rate that is too low to allow the export of industrial goods (and sometimes even the production for the domestic market), causing a decline of the industrial sector or restraining its growth and diversification. The literature on this matter is international (Sachs and Warner, 2001; Bresser Pereyra, 2008; Palma, 2006) and is linked to more general studies about deindustrialisation (Baumol, 1967; Rowthorn and Ramaswamy, 1997). The porpoise of this paper is to make a review of the literature cited, in the light of the recent performance of the Argentinean economy. The aim to do so is to establish whether a stable and competitive exchange rate is an effective and sufficient instrument to stimulate Argentinean development, being able to resolve the social asymmetries and imbalances that characterized the past performance of the economy. On the other hand, we intend to investigate whether this development path is sustainable in time, because it involves changes in economic structure that can alter the initial conditions.