Margaret Sy 1 pm section 10/4/2011 What is the IMFs main critique of its own conduct during the Argentine crisis?

In the 1990s, Argentina adopted a Convertibility Plan and pegged its peso to the US dollar in an attempt to reign in its hyperinflation. This combined with poor fiscal policy ultimately resulted in huge amounts of foreign debt and very low exchange rates, both of which proved to be unsustainable, leading to economic, social, and political dislocation and the resignation of the [Argentine] President (Executive Summary, 433). Throughout this decade, the IMF had continued to provide financing and advice to Argentina, yet the crisis still occurred. The IMF had failed to properly enforce the formation of good fiscal policy, and then continued to support the weak policies instead of enforcing conditionality or simply cutting their losses. Basically, it did not do its job. It left Argentina to run its flawed system instead of helping it develop a plan that would lead to a stable currency and sound fiscal policy. In the short term, the convertibility regime actually did stabilize the countrys currency, and Argentina made it through the Mexican crisis. However, as the Brazilian currency also fell, the IMF suspected that convertibility might not be viable in the long term. Yet it did not make any effort to develop a plan B because it suspected that any mention of changes to the exchange rate policy would alarm people and cause the currency to implode anyway. The IMF not only ignored the unsustainable policies, but it continued to finance Argentina without enforcing any real manner of conditionality. It insisted on the need for structural reforms, but in the years when the IMF gave funds to the country, only two

structural changes were made by the Argentine government, which continued to receive funds into the next decade. By putting so much trust in Argentina, the IMF allowed it to continue its unsustainable spending and exchange rates. The board was content to stay back and hope that market confidence would alleviate the problems. When the IMF finally realized that it was not helping and made the decision to pull out, the economy was so unstable that Argentina defaulted on its foreign debts, and the governments poor follow-up to its decision to abandon convertibility made everything even worse. From the Argentine crisis, the IMF realized that in future cases it must examine different courses of action and be more aggressive in helping troubled countries maintain a reasonable exchange rate and sustainable debt policies, and that if the country is not doing its part to help itself, it may be better to simply pull out instead of half-heartedly fund weak policies.