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hyperinflation in 1990 led to choice of currency board: after 2 hyperinflations,

hard peg was drastic solution to control inflation.


wash consensus: privatization, capital account libaralization, reduction of size
of gvt, ... 1st generation reforms.
Most countries engaged in those reforms (plot of growth and structural reforms):
Argentina was a best.
survived from the Mexican crisis (only brief recession in 1985): most exports in
Argentina going to Brazil, which helped surviving the contagion.
after the tequila crisis, hard peg seemed to have been a good choice. Stan Fishe
r view: either pure floating or hard peg were suggested for dev countries.
a devaluation of a strongly dollarized economy doesn't work.
consolidation of Banking sector in the 1990s. from 166 (1994) banks to 89(2000)
Banks seemed to have strong fundamentals. It seems they could have weathered the
liquidity shocks.
Catch: still big exchange rate risk even if loans and credits made in dollars. W
hy would the system collapse in case of mo
why would the banks fail if there is a devaluation. This has changed now after c
risis in Europe.
It was assumed also that headquarters would help their subsidiaries.
In 1997, the dollar started to strenghten against emercy market currencies. lots
of devaluations in Asia, Russia, Brazil, etc... Terms of trade started
to deteriorate.
currency overvalued->investment and growth slows down-> capacity to pay deterior
ates: increasing fin exposure to fiscal sector, doubts abt debt substainability,
inducing capital flight
Argentina: financial account crisis ->investors wait for prices (of equities) to
come down.
Interest rates work on the imports more than on exports.
ask about relationship between interest rate and exportations of prices of commo
dities. Saudi Arabia has lots of savings
Fiscal devaluation is punished by WTO.
Zero deficit rule imposed.
bank runs explain the hidden catch in dollarized account.
Sweden hiked interest rates
No monetary discipline: demand for base money in Peso.