Comments and Discussion on the Argentine Papers

Joyce Chang: I concur with Andrew Powell's conclusions on the roots and causality of the Argentine crisis. Powell points out convincingly that the scope of the crisis is clearly multidimensional. He also demonstrates that fiscal mis management and the deteriorating trend in debt dynamics, exacerbated by messy politics, provided the best forewarning of the crisis. Powell presents a thoughtful analysis of why the balance of payments and size of the current account deficit are less relevant sources of the country's crisis. I fully agree with Powell's assessment that the fiscal adjustment did not need to be so large in the first year of former president de la Rua's adminis tration. The biggest disappointment was that the government was not able to take the initial small steps necessary on the fiscal side to embark on a path of debt stabilization. I would argue that if the de la Rua government had posted a relatively modest increase in the primary surplus in 2001, bringing the pri mary surplus up to 1.5 percent of gross domestic product (GDP) in 2001 from 0.4 percent of GDP in 2000, this would likely have been sufficient to gain market credibility. By the time the de la Rua administration realized the mag nitude of the crisis and called for a zero deficit, it was too late to regain market credibility. Much larger spending cuts were necessary, in the order of 25 per cent, not the 13 percent announced. Powell references a JP Morgan research report written in 2000 (before the JP Morgan Chase merger), which illustrates that the initial fiscal adjustment necessary for Argentina was not that large, and the failure to deliver that adjust ment was a key cause of the crisis.11 would like to point out that JP Morgan's paper was revised in 2001 (postmerger) by a new research team under my