THE ORIGINS AND LEGACY OF A CURRENCY BOARD IN ARGENTINA Martin M. Elissetche ...

208 Pages·2016·1.31 MB·English

ABSTRACT

Title of Dissertation: THE ORIGINS AND LEGACY OF A
CURRENCY BOARD IN ARGENTINA

Martin M. Elissetche, Doctor of Philosophy,
2016

Dissertation directed by: Professor Karol Soltan, Department of
Government and Politics

This is a qualitative case study of the adoption of a currency board in Argentina in
1991. It presents a discursive analysis and intellectual history of four overlaying and mutually
influencing stories of Convertibility’s adoption. It is (1) the story of how Menem aligned
himself to the Washington Consensus as a means to win a Presidential election. This
ideological alignment influences and is influenced by a (2) reconstitution of the Peronist
Party’s historically entrenched identity. This in turn re-fashion the whole system of interest
articulation and relative power of interest groups in Argentina. The adoption of a currency
board also marks the pace of (3) the entrenchment neoliberal interests across a domestic
network of neoliberal think-tanks, technocrats, politicians, and “technopoles” articulating
neoliberal interests outside of the Washington Consensus, within an International Neoliberal
Network. Argentina’s adoption of a currency board falls in line with the Corner Solutions, a
neoliberal doctrine promoted to influence developing countries to adopt two forms of exchange
rate regimes that allow for less government involvement, including a currency board.
Argentina starts as a test country and then becomes (4) an ideological stepping stone to help
promote the creation of currency boards across more “developing” countries. These stories are
not sequential but concurrent, and they help advance an alternative critique of neoliberalism
that focuses on specifics to induce case-specific lessons versus a theory claiming to provide
any universal truth.
THE ORIGINS AND LEGACY OF A CURRENCY BOARD IN ARGENTINA
by
Martin M. Elissetche
Dissertation submitted to the Faculty of the Graduate School of the
University of Maryland, College Park, in partial fulfillment
of the requirements for the degree of
Doctor of Philosophy
2016
Advisory Committee:
Professor Karol Soltan, Chair
Professor Virginia Haufler
Professor Stephen L. Elkin
Professor C. Fred Alford
Professor Roberto Patricio Korsenewicz
© Copyright by
Martin M. Elissetche
2016
ii 
Table of Contents
Table of Contents ...........................................................................................................ii 
List of Figures ...............................................................................................................iii 
Chapter 1: Introduction: Do Free Markets make for Free People in Argentina? ...........1
Chapter 2: Neoliberalism and Its Critics ..................................................................... 18 
Section 1.................................................................................................................. 20 
Section 2.................................................................................................................. 29 
Section 3.................................................................................................................. 36 
Chapter 3: The Corner Solutions and the difference Between The Washington Consensus
and the International Neoliberal Network ................................................................... 47 
Section 1.................................................................................................................. 49 
Section 2.................................................................................................................. 64 
Section 3.................................................................................................................. 71 
Chapter 4: Case Study: Neoliberalism and the Birth of Convertibility ...................... 85 
Section 1.................................................................................................................. 91 
Subsection 1 ........................................................................................................ 95 
Subsection 2 ........................................................................................................ 98 
Subsection 3 ...................................................................................................... 103 
Section 2................................................................................................................ 108 
Subsection 1 ...................................................................................................... 112 
Subsection 2 ...................................................................................................... 117 
Subsection 3 ...................................................................................................... 121 
Section 3................................................................................................................ 133 
Subsection 1 ...................................................................................................... 134 
Subsection 2 ...................................................................................................... 142 
Subsection 3 ...................................................................................................... 151 
Subsection 4 ...................................................................................................... 156 
Chapter 5: Neoliberalism and Identity ..................................................................... 165 
Section 1................................................................................................................ 168 
Section 2................................................................................................................ 171 
Section 3................................................................................................................ .176  
Section 4.............................................................................................................. ... 187 
Bibliography .......................................................................................................... .... 190
iii 

List of Figures

Figure 1: Major think tanks/networks behind Menem era neoliberalism.
Source: Plehwe (2011), p. 138.

Figure 2: Normative and Positive Theory: Components

Figure 3: Normative Theory: Moving Parts
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Chapter I: Introduction.
Do Free Markets make for Free People in Argentina?

On January 6th, 2002, to the surprise of many economists and political scientists alike, the
Argentine currency board arrangement (CBA), herein referred to as Convertibility, adopted ten
years before in 1991, suddenly crumbled. Up until a few months before its collapse, many
economists across domestic1, foreign2, and multilateral organizations3 praised the Argentine model
as an example for other developing countries to follow. It was, by all accounts, a successful
application of a neoliberal4 program in Argentina. The crisis however silenced most, although
surprisingly not all.
A policy recommended as part of a mainstream neoliberal economic program known as the
“Corner Solutions”, its failure has caused many practitioners and theorists alike to wonder what
went wrong while its most adamant supporters continue re-investing commitments to CBAs in
other countries, preaching its benefits and promoting it across other countries to this day. After
thirty (30) years of mixed results and an enumerable amount of criticism on the effects of
neoliberalism in Latin America, it begs the question: why keep promoting policies whose results

1 See Kiguel, M. A. (1999). The Argentine Currency Board. Buenos Aires, Argentina: Universidad del CEMA; and
Rodrı́guez, C. A. (1995). Ensayo sobre el plan de convertibilidad. Capital Federal [i.e. Buenos Aires: C.E.M.A.
2 Hong Kong Monetary Authority & Yam, Joseph. (2000, December 14) The Two Corner Solutions. Retrieved at:
http://www.hkma.gov.hk/eng/publications-and-research/reference-materials/viewpoint/20001214.shtml
3 International Monetary Fund. (2001, September 7) IMF Augments Argentina Stand-By Credit to $21.57 Billion,
and Completes Fourth Review [Press Release No. 01/37]. Retrieved at
https://www.imf.org/external/np/sec/pr/2001/pr0137.htm
4 Neoliberalism is a term used by its critics to define an orthodox ideological school that believes free markets leads
to free people I describe in Chapter II. As they do not self-identify by this name I will not capitalize it in this
dissertation out of respect for those who do recognize this moniker.
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at best seem ambiguous and at worst have deepened existing income inequality5 and arguably
created more crisis-prone and weakened markets?
Up until very recently, neoliberal policies have been supported by mainstream (and
therefore the majority) of academics and practitioners in fields related to international political
economy: this theoretical/ideological posture has been setting the tone of economic development
research and agendas in developing countries for the past 30 years. They have been molding the
North’s ideas of economic, social, and political interaction longer still, since the end of WWII. The
IMF, which oversees the international monetary system, and is representative of the above
mentioned research, has been at the forefront of these changes which until recently have reflected
Maurice Obstfeld’s (1998) position that “economic theory leaves no doubt about the potential
advantages” of capital account liberalization [one of the three pillars of Neoliberalism6]. This view
has recently changed7.
This new critique of adopting neoliberal polices in developing countries by the IMF is
surprising. Traditionally, it has been its staunchest supporter and the co-architect of these polices
across its member countries, not surprisingly so as it usually represents the mainstream position of
its staff’s filed: economics. This critique however is nothing new. For decades now, there have
been innumerable critiques of Neoliberalism8, its spread through Latin America and even its rise

5 See Quiggin, J. (January 01, 1999). Globalization, Neoliberalism and Inequality in Australia. Economic and
Labour Relations Review, The, 10, 2; Schneider, G. (2003). Neoliberalism and economic justice in South Africa:
revisiting the debate on economic apartheid. Review of Social Economy, 61(1), 23-50; Fiorentini, R., & Montani, G.
(2012). The new global political economy: From crisis to supranational integration. Cheltenham, Glos, UK:
Edward Elgar; and Evans, P. B., & Sewell, W. H. (January 01, 2013) Neoliberalism: Policy regimes, international
regimes, and social effects. Social Resilience in the Neo-Liberal Era, 35-68.
6 We take this statement to mean Obsfield believes that economic theory undeniably supports the promotion of
neoliberal policies. Neoliberals do not self-identify as such, and rarely use the term themselves.
7 See Ostry, Jonathan D., Loungani, Prakash & Furceri, Davide. (June 2016) Neoliberalism: Oversold? Finance &
Development, Vol. 53, No. 2 for one of the IMF’s recent, less orthodox views on capital account liberalization and
the potential detriments of applying orthodox neoliberal policies.
8 See Blomgren, A.-M. (1999). Neo-liberal political philosophy: a critical analysis of Milton Friedman. TPB;
Bourdieu, P. (1998). The essence of neoliberalism: What is neoliberalism?: A programme for destroying collective
structures which may impede the pure market logic: utopia of endless exploitation. U.st: Le Monde Diplomatique;
3 
in Argentina under Carlos Saul Menem’s presidency9. Each has brought us a bit closer to
understanding the 90s and the apogee of neoliberal polices in Latin America, its ins and outs,
threats and weaknesses, causes and consequences.
Unfortunately, while each is a bit more insightful than the next, current critiques of
neoliberalism remain somewhat vague and therefore difficult to learn from. Namely, these
critiques usually think in general or abstract terms, attributing the broad-stroke effects one or
several of these policies has without getting to far into detail. States are usually considered unitary
actors, neoliberal policies are recommended or enforced by a broad “Washington Consensus,” and
the lowest level of analysis often reached is usually institutional. If the IMF’s changed posture is
indicative of an inflection point in mainstream economics’ appreciation of neoliberalism, I believe
we could benefit from a more detailed critical analysis, on a policy by policy case, in order to
extract recommendations for alternative/future policy insight.
The critique I therefore advance of neoliberalism is specific, about the implementation of
a CBA in Argentina. I focus on one policy, exchange rate regime policy, using historical evolutions
domestically and internationally to place its adoption into context. I consider the deeds and words
of domestic and international actors involved in its inception with individual economists and
politicians as my smallest unit of analysis, followed by domestic and international think tanks,
political parties, and interest groups, ending with multi-lateral agencies and agreements –

Bourdieu, P. (1998). Contre-feux: Propos pour servir à la résistance contre l'invasion néo-libérale. Paris: Editions
Liber ; Bourdieu, P. (2001). Contre-feux: Pour un mouvement social européen. Paris: Raisons d'agir Editions;
Giddens, Anthony. (1998). The Third Way. The Renewal of Social Democracy. Cambridge, MA: Polity; Chomsky,
N. (1999) Profit over people: Neoliberalism and global order. New York: Seven Stories Press; Campbell, John L.
and Ove K. Pedersen, eds. (2001): The Rise of Neoliberalism and Institutional Analysis. Princeton, New Jersey:
Princeton University Press.; Touraine, A. (2001). Beyond neoliberalism. Cambridge, UK: Polity Press;; Rapley
2004; and Harvey, D. (2005). A brief history of neoliberalism. Oxford: Oxford University Press.; and Hagen, Roar.
(2006). Neoliberalism and the social sciences - reflection theories of modern society. Oslo: University Press.
9 See Plehwe, D., Walpen, B., & Neunhöffer, G. (2006). Neoliberal hegemony: A global critique. New York:
Routledge.
4 
describing the supranational, international, domestic, and institutional network of actors at play
and their relation to one another.
Mine however, is not the only critical analysis on Convertibility. From January 1991 to
May 2016, there have been hundreds of books and articles that directly or indirectly discuss the
Argentine currency board in English 10, for example there are three hundred and sixty-one (361)
Spanish-language articles published specifically on Argentine Convertibility, averaging a rate of
fourteen (14) per year with a high of twenty-eight (28) publications in 2008 and a low of four (4)
in 199711. None of these has, to my knowledge, studied the political reasons behind why
Convertibility was adopted in Argentina, only the need to fight hyperinflation or other structural
economic concerns are given. A study that simultaneously critiques neoliberalism and specifies
the political determinants behind Convertibility’s adoption, to my knowledge, does not currently
exist.
For the most part, it seems that authors interested in studying Convertibility are more
interested in the economic12, and technical aspects13 of it. Only a handful of publications are

10 This number was found first using WorldCat and the Library of Congress search engines using the terms
“Argentina”, “currency board”, and “Convertibility”, then going over each document and confirming its relation to
Argentina’s currency boards.
11 This literature review was conducted in the Libraries of Congress of the Unites States and Argentina, using
WorldCat and local dewi deciblble catalogues using “Argentina”, “caja de conversion”, and “convertibilidad” as key
word searches.
12 See Obstfeld, M., Shambaugh, J. C., Taylor, A. M., & International Monetary Fund. (2007). Financial stability,
the trilemma, and international reserves. Washington, D.C.: International Monetary Fund; Bagliano, F. C., Favero,
C. A., & Franco, F. (1999). Measuring monetary policy in open economies. London: CEPR; Debowicz, Dario.
(2016, April 1). Does the microsimulation approach used in macro–micro modelling matter? An application to the
distributional effects of capital outflows during Argentina's Currency Board regime. Economic Modelling, 54, 1,
591-599.
13 See Mendoza, E. G., Uribe, M., & Board of Governors of the Federal Reserve System (U.S.). (1998). The
business cycles of currency speculation: A revision of the Mundellian framework. Washington, D.C: Board of
Governors of the Federal Reserve System; Levy-Yeyati, E., & Sturzenegger, F. (2005, January 01). Classifying
exchange rate regimes: Deeds vs. words. European Economic Review, 49 (6). pp. 1603-1635.; Cavallaro, E., Maggi,
B., & Mulino, M. (September 01, 2011). The macrodynamics of financial fragility within a hard peg arrangement.
Economic Modelling, 28, 5, 2164-2173; and Kose, N., & Togay, S. (2009). Money price relationship under the
currency board system: case of Argentina. Ankara.