James Devine wrote: >>Since the exchange rate is ludicrously high (one dollar = one peso), >>Argentina has been subsidizing systematically the imports and punishing >>exports. This exchange rate was imposed in order to make it easier for >>the Government to raise the dollars necessary for the payment of the >>foreign debt. > >this doesn't make sense. The high exchange rate implies a current >account deficit that in turn leads to Argentina's external debts >_increasing_. Strictly speaking, if A's goal is to pay off foreign >debt, then exports should exceed imports.
You're thinking too real sector! The fixed exchange rate is a security blanket for foreign investors, to keep capital coming in (or discourage it from leaving). Of course that means higher debts in the long run, but, as a former official in the Jamaican finance ministry once told me, "You have no idea what it's like to have to come up with $100 million next week." He was right - I had no idea. Doug
