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1) White House economic adviser Larry Kudlow suggests that @USTreasury is advising #Argentina to reestablish a currency peg, "the only way out of Argentina's dilemma." "That worked in the '90s," he said. "It brought down inflation and kept prosperity."https://youtu.be/OWV3VarFOpU
2) Though Kudlow is a senior official, it's not clear that is accurate. So far, @USTreasury has supported #Argentina by strongly backing the $50 billion #IMF bailout, which favors a floating exchange rate.
3) Kudlow is correct, however, that #Argentina's "Convertibility Plan," introduced in 1991 by Carlos Menem's finance minister, Domingo Cavallo, brought down inflation from 2,316% in 1990 to single digits by 1994.
4) And Kudlow is right, the initial phase of convertibility was also a time of economic expansion in #Argentina. Real GDP grew by 10% in 1991, 9.5% in 1992, 5.7% in 1993 and 7.5% in 1994.pic.twitter.com/y7Fw32EY7x
5) But the convertibility experiment did not end well. Though it solved hyperinflation, it shackled #Argentina with an overvalued peso that stifled exports, and it failed to bring about fiscal discipline.
6) Moreover, it is not clear that a peg, or dollarization, is needed now. After all, the #IMF has already ordered @BancoCentral_AR to stop monetizing #Argentina's debt, and the primary deficit is supposed to disappear next year.
7) For now, high inflation in #Argentina is mostly a result of the pass-through from peso depreciation, and of reductions in government subsidies for public utilities, which have driven up the price of electricity, natural gas and transportation.
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