ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Argentina and East Asia:The Peg Does It Yet Again

Notwithstanding some key differences, an important parallel between the east Asian crisis of 1997-98 and the recent turmoil in Argentina is the pivotal role played by the US dollar pegs in instigating the vulnerabilities which eventually led to the concerned countries succumbing to crisis. What is the appropriate lesson to draw from these experiences?

Viewed from south-east Asia, the recent turmoil in Argentina provides a stark reminder, if reminders were necessary, of the acute financial, economic and socio-political problems that plagued south-east Asia in 1997-98, particularly the region’s largest country, Indonesia.

There are at least two key differences between the two crisis episodes. Argentina’s external borrowings were accumulated to finance profligate government spending. The country managed to amass US$ 155bn in central government and provincial debt. This distinguishes it from east Asia where the external imbalances were largely private sector driven. In addition, the Argentine crisis, having been well anticipated, did not lead to contagious fallout to other emerging economies in the region, let alone the globe. This, of course, is in sharp contrast to the east Asian crisis which began in Thailand and rapidly spread to Indonesia and other regional economies and some extra-regional ones too.

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