In the midst of a turbulent day in the exchange rate, a prestigious American economist analyzed the situation in Argentina and how it was reached. Through the convenience of his Twitter account, Nobel Economics Laureate Paul Krugman opened the line to explain what he believed happened in our country.” Crying for Argentina: I’m trying to understand the disaster and I have a first draft. As I understand it, when Macri assumed he already had a problem of double deficit (budget and foreign) with a significant current account imbalance,” he began, attaching a chart.
It went on to note that the “textbook response” recommended “fiscal consolidation plus currency depreciation” so that an improvement in exports would offset the decline in domestic demand. However, Macri was “unwilling to bear the rejection of large budget cuts,” as well as “allowing a rapid depreciation of the peso both because of the inflationary impact on a country with a history of inflation, and for dollar debt.”
“Instead, he turned to more foreign loans and that was possible at first, for the honeymoon with the markets and then because of the massive support of the International Monetary Fund,” he added. In conclusion, Krugman emphasized that the policy implemented by the Change management “is incredibly close to the script of 1998-2001; with no convertibility law, but similar policy errors, and a similar enablement of those errors by the IMF.”
One last tweet awarded some of the responsibility to Christine Lagarde, now at the head of the European Central Bank: “And yes, this makes me worry about Lagarde’s role at the ECB. Everyone involved really should have known.” In this note:
