High Inflation and Stabilizations in Argentina through the lens of the ClassicalStructuralist Approach: The cases of the Austral Plan and the Convertibility Regime

ALVAREZ, RAMIRO E.; MEDICI, FLORENCIA

Rio de Janeiro

Workshop; 4th INTERNATIONAL WORKSHOP ON DEMAND-LED GROWTH: MONEY AND FINANCE; 2023

Instituto de Economia, Universidade Federal de Rio de Janeiro

The debates between demand-pull and cost-push theories of inflation have influenced the designing of stabilization programs since 1922-1923 German hyperinflation. Nevertheless, after Capital Debates, the marginalist theory proved to be unable in determining equilibrium prices asrelative scarcity indexes towards which market mechanisms ensure the convergence of prices when heterogeneous capital goods are considered among inputs of productive processes. This result set an unsurmountable problem for mainstream theory. In this article, we use a frameworkinspired by the Classical-Structuralist tradition, to present an analytical reconstruction of the political economy behind the stabilizing experiences in Argentina between 1983 to 1991. Our main hypothesis is that, in a small open economy with conflictive claims led by class antagonism in a democratic regime characterized by political stalemate, the exchange rate plays a central role in stabilizing the economy. Through the imposition of an exchange-rate anchor, the state discipline both entrepreneurs and the propertyless group, thus stabilizing the price level. In this sense, the foreign reserves, the balance-of-payments result and the financial position of the State are determinants of the success or failure of the stabilization policy. This hypothesis is analytically presented in light of the stabilizing experiences in Argentina between 1985 to 1991.