Argentina’s lopsided recovery

OF ALL the countries in Latin America, Argentina was the most serious accidental casualty of Mexico's currency collapse in 1994-95. Three years of swift growth came to an abrupt halt in 1995, as banks folded, $8 billion of deposits fled the country, and President Carlos Menem deflated the economy to preserve his anti-inflation plan. A “law of convertibility” had established a scheme—known simply as “convertibility”—which fixes the value of the peso at parity with the dollar, and restricts the domestic money supply to the level of foreign-exchange reserves. Argentina saved its precious and new-found price stability, but at a cost: the economy shrank by 4.4% in 1995. Pessimists claimed that the country had been locked into a deflationary straitjacket.