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Neoliberal restructuring,
financialisation and socio-political
competition in Argentina: the
Convertibility System and the
contradictory outcomes of
dollarisation, 1989–2001
a
Mariana Jiménez-Huerta
a
Queen Mary, University of London , UK
Published online: 23 Oct 2008.
To cite this article: Mariana Jiménez-Huerta (2008) Neoliberal restructuring, financialisation

and socio-political competition in Argentina: the Convertibility System and the contradictory
outcomes of dollarisation, 1989–2001, Contemporary Politics, 14:3, 335-355, DOI:
10.1080/13569770802396386
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Contemporary Politics
Vol. 14, No. 3, September 2008, 335 –355
Neoliberal restructuring, financialisation and socio-political competition

in Argentina: the Convertibility System and the contradictory outcomes
of dollarisation, 1989– 2001
Mariana Jiménez-Huerta
Queen Mary, University of London, UK
In Argentina, as in many transition economies, the maintenance of monetary management and

policy options while also maintaining the autonomy of national currencies has been severely
constrained, becoming increasingly dependent on and conditioned by the financial
globalisation process. So far, the dominant view within International Political Economy has
too often assumed the existence of a process of convergence amongst different financial
markets. I question this view by arguing that this process of convergence does not always
hold if we look at the multifarious experiences of particular countries for explaining policy
responses and outcomes as a result of very specific instances of distributional conflict and
political bargaining. This paper argues that in searching for strategies, such as monetary
policy, developing countries have constantly been compelled to introduce policies
requiring (a) openness to international financial flows; (b) consensual and mutually
advantageous relationships with states (and market actors) that provide and/or control
international reserve currencies; and (c) domestic stabilisation and the re-articulation of
socio-political coalitions around the policy choices implied by (a) and (b).
In search of a strategy, the Argentine government adopted in 1990 a rigid exchange rate
mechanism via a currency board using the US dollar as an anchor, labelled the Convertibility
Plan. Such a strategy required not merely economic adaptation but, more significantly,
a re-articulation of the political process around different groups and interests. In Argentina,
I identify a pattern of initial stability and credibility undermined by compromises with key
coalition partners and with powerful opponents of the policy which eventually destabilised
its credibility and sustainability, leading to a very protracted crisis and eventual
abandonment of the policy in 2001 and the return to a managed exchange rate system.
Keywords: neoliberal restructuring; dollarisation; financialisation; coalition-building
Introduction
It is now well established that since the 1970s the world economy has been characterised mainly
by three main processes: neoliberal reform, globalisation and financialisation (Epstein 2005).
For developing economies, the late 1980s and particularly the 1990s represented the decade
of neoliberal restructuring and globalisation. In Latin America, globalisation meant the return
to international capital markets on a significant scale after a long period of inward-orientation,
especially marked by the protracted resolution of the debt crisis of the 1980s. However, the
Mariana Jiménez-Huerta is Teaching Fellow at the Politics Department, Queen Mary, University of London,
and Associate Fellow at the Institute for the Study of the Americas, University of London. She specializes in
the field of International Political Economy with research interests in monetary policy implementation,
economic policy reform, global finance, and comparative politics in the context of Latin America. Prior
to joining Queen Mary, University of London, Mariana was a Doctoral Researcher in IPE at the
University of Manchester. The author would like to thank Professor Phil Cerny, Dr. Johnna Montgomerie
and two anonymous reviewers from Contemporary Politics for their helpful comments on earlier drafts
of this paper; the usual disclaimer applies. Email: majimhu@aol.com/m.jimenez-huerta@qmul.ac.uk
ISSN 1356-9775 print/ISSN 1469-3631 online

# 2008 Taylor & Francis
DOI: 10.1080/13569770802396386
http://www.informaworld.com
336 Mariana Jiménez-Huerta
increased size of international financial markets, the continuous rapid flows of international
capital and world market integration brought in the second half of the nineties a phase of finan-
cial globalisation that had three unpredicted consequences: multiple damaging exchange rate
crises, instability and financial contagion.
This new environment drew the attention of academics, governments, policymakers and
policy observers to the political importance of monetary affairs and global finance. Monetary
affairs, and the ongoing changes of financial markets, triggered the need to look for alternative
explanations to the dominant set of assumptions that International Political Economy (IPE) has
too often assumed. First, the realist and neo-realist view that monetary affairs and financial glo-
balisation are still predominantly a by-product of rational decisions derived by nationally-bound
issues such as sovereignty and security (see for instance, Helleiner 1994, Cohen 1998 and Gilpin
2000). Second, the perception that finance is a highly technical activity driven by a knowledge-
able elite (Block 1996, Toporowski 2001). Third, the state vs. markets view, which asserts that
the authority of national governments in macroeconomic management is defied and transformed
by markets characterised by highly mobile capital and private forms of authority (Cerny 1993,
Strange 1996, Pauly 1997). However, these three dominant sets of assumptions have privileged
finance, and treated state and financial actors as the only capable forces of bringing about
change. Under these dominant sets of assumptions societal actors, particularly in the developing
world, merely adjust to the new will of the markets (Watson 2006).
In contrast to these dominant set of assumptions, I argue here that the key independent
variable in the process of financial globalisation has been the interaction amongst a diverse
range of economic, political and social actors, that are part of this transnational process,
and that have been the ones actually shaping both policy and broader processes of socio-
political change (Cerny 2001). Furthermore, I argue that the dominant assumptions within
IPE mentioned above have been challenged by a growing literature on financialisation,
which sees finance as an uneven process and is presented as a ‘more systematic approach to
understanding the impact of the rise of finance on social organization and governance struc-
tures’ (Montgomerie 2006, p. 302). While financialisation certainly offers a new light in
which to understand the presence of finance in every day life and despite being analytically
coherent, it has remained centred primarily on the analysis of the Anglo-American and
European experiences. The analysis of the rise of shareholder value, the power of institutional
investors, as well as financial innovation in markets has yet to consider the ways in which the
rise of financialisation may be considered a converging global process. As we will see later on
in the article, the complex interplay between the expectations of the benefits of the currency
board and dollarisation in the Argentine context and the very complex way it materialises
in political practice sheds new light in our understanding of the ways in which developing
countries must encounter financialisation.
Thus, I conclude here that financialisation – financial market integration and innovation – is
not an even process of convergence but one which articulates differently in different insti-
tutional, social, economic and political contexts. It is a result of very specific instances of
distributional conflict and bargaining. Using Argentina as a case in point, this paper suggests
that there is an analytic value in looking closely at how coalitions transnationally linked
organise in support or rejection, not only of neoliberal reform, but also of the process of
financialisation. A crucial argument in all of this is the assertion that the very processes of
policymaking, distributional conflict and interest bargaining are all being, to a significant
extent, transformed by financial globalisation. There is a growing tendency for distributional
competition and conflict to arise between ‘domesticist’ interests (economic, social or political),
but also between them and various ‘globalising’ interests. These interests often reflect
competing demands of different sorts of internationalising economic sectors (Cerny 2001).
Contemporary Politics 337
Thus, the scope for distributional competition and conflict – that cut across the state and make it
impossible to embark on effective reform programmes – is magnified several times over.
This paper will look at dollarization – via the implementation of a currency board – as a
particular case of monetary policy in Argentina. Dollarisation, in this context, came through
the implementation of what came to be known as the Convertibility Plan. The Convertibility
Plan gave the US dollar recognition as full legal tender, interchangeable with the peso. In
relation to these contexts, this article contributes to the literature by developing the following
arguments: (a) the choice of exchange rate policy, dollarisation being one possibility, can
only be understood with reference to a dialectical process between structural and domestic
level variables; (b) dollarisation has to be seen not in isolation, but as a component part of a
wider package of neoliberal reforms that have been at the core of the Argentine policymaking
process; and (c) and perhaps more importantly, that capital mobility imposes not only a trade-
off between monetary policy autonomy and exchange rate stability (Mundell 1961, Cohen
2000) but more significantly between two often conflicting but also often complementary dimen-
sions: credibility and competitiveness. I will discuss these two concepts in the context of Argen-
tina in the following section.
Hence, I argue here that dollarisation is a response to a trade-off between two potentially
contradictory and often difficult to manage demands: credibility vs. competitiveness. In
theory, dollarisation imposes a form of political and economic stability and discipline, and
hence can secure credibility in the short-run. In principle, it is supposed to induce competitive-
ness if it creates a disciplinary framework within which competitiveness-enhancing reforms (e.g.
labour, fiscal and regulatory reforms) can be pursued. However, in the long run, it can also
detract from competitiveness, producing crises, destabilisation, coalition breakdown, instability
and reconfiguration if other appropriate policy reforms are not pursued. In other words, dollar-
isation can actually disrupt and counteract other reforms, especially if it lacks credibility – con-
sistency, support and effective implementation. Ironically, very often the same coalitions that
support dollarisation resist complementary reforms. In turn, the rigidity that this provokes can
undermine both stable growth and the conditions for coalition maintenance. The outcome, far
from being a stable neoliberal regime supported by a new effective coalition, may be heightened
instability, the collapse of the original coalition and institutional breakdown.
The most important finding of the analysis presented here is the continuous attempt of the
Argentine government to abandon Import Substitution Industrialisation (ISI) as a macro-
policy, while paradoxically maintaining aspects of it in order to bolster finance-led growth
initiatives under dollarisation. Finance-led growth is treated here as a new regime that puts finan-
cial motives, markets, institutions and instruments at the centre of its growth process (Epstein
2005). Financial capital is seen here as the main mechanism for the accumulation of wealth
and allocation of resources.
Dollarisation in Argentina, due to its overall effect on competitiveness, became whipsawed
between competing interests that undermined not only policy credibility in specific issue-areas,
but also prompted a massive crisis and the destabilisation of the state. Time is a fundamental
element in understanding the problem of maintaining the socio-political coalition supporting
the reform. In Argentina, an eclectic coalition around short-term strategies was put together. I
identify a pattern of initial credibility built around compromises made with key coalition part-
ners and with powerful opponents of the policy. However, these compromises eventually desta-
bilised the credibility and sustainability of the coalition, leading to a very protracted crisis and
eventual abandonment of the policy in 2001 and the return to a managed exchange rate system.
The analysis presented in this article moves beyond previous works made on Argentina to
demonstrate that neoliberal restructuring and the subsequent crisis were not only a consequence
of the structural pressures brought about by global finance (see for instance, Datz 2004, Rodrik
2002, Heymann and Kosacoff 2000, p. 50). Nor were the result of autonomous moves from, and
continuous mismanagement of, the Argentine ruling class. I demonstrate here how the
implementation of dollarisation – via a currency board – in Argentina was a clear strategy at
financialisation: the process of privileging powerful financial interests, and to deepen financial
markets, which, based on a bi-monetary system, signalled the ultimate commitment to neoliberal
restructuring (Rodrik 2002, Datz 2004). It was a clear concerted move from various socio-
political and economic actors to embrace finance as a new policy strategy for stabilising,
managing and developing national economies.
This paper will examine the Argentine case as follows: the following section will look at
the literature surrounding neoliberal restructuring and financialisation in Argentina. The third
section will examine closely the patterns of political bargaining that led to the implementation
of the Convertibility Plan, and will look at some of the causes that prompted the Argentine
crisis and the breakdown of the neoliberal coalition. Section four will draw some concluding
remarks.
Neoliberal restructuring and financialisation in Argentina

The Argentine case can be taken as one of the most important laboratories of neoliberal restruc-
turing and financialisation in the developing world. The financial reform of the 1990s and the
monumental crisis of 2001 represent a controversial case of financial-led growth. On the one
hand, Argentina’s neoliberal restructuring was seen as a tale of successful reform and positive
economic performance. On the other hand, the crisis was seen as the end result of an ongoing
process of excessive financialisation.
In Argentina, continuous economic crisis throughout the 1980s, amid hyperinflation, debt
problems, increasing pressure for wage increases and threat of capital flight, prompted the gov-
ernment to embark on unprecedented institutional changes that sought to ‘lock-in’ neoliberal
policies via the implementation of a strategy of dollarisation through the adoption of a currency
board, labelled the Convertibility Plan. The implementation of the Convertibility Plan was the
culmination of the government’s efforts at neoliberalisation which formed part of a policy
package that included, amongst other things: privatisation, liberalisation, deregulation and
central bank independence (Rapoport 2000). This section argues that these neoliberal changes
can be seen as part of the broader process of financialisation: a deliberate move to reduce the
room to manoeuvre of the state by structurally increasing the lever of financial investors and
their interests and practices.
Financialisation has been a global process initiated first in the US and the UK during the mid-
to-late 1970s due to a change in macroeconomic priorities, namely: the collapse of the Bretton
Woods arrangement; the liberalisation, innovation and integration of financial markets; and
the rapid and increased movements of capital flows and the change in the provision of credit.
These dramatic changes in the international financial system prompted a diversity of analyses
within IPE on how to understand the importance of global finance. As mentioned in the intro-
duction, the dominant view of global finance within IPE emphasises the fact that the transform-
ation in the international political economy has challenged national policy autonomy to the
extent that the legitimacy of national governments is being undermined and transformed by
markets, institutions, norms, practices, private forms of authority and other actors (Keohane
and Nye 1989, Helleiner 1994, Strange 1996, Cohen 1998). Capital mobility and the changing
nature of credit provision have fundamentally reshaped the relationship between states and
private structures (Cerny 1993, Germain 2001). Powerful knowledgeable elites have been
driving the financial globalisation process, taking away power from the preserve of national
governments (Block 1996, Toporowski 2001). These interpretations of global finance, while
analytically strong, have depicted finance as a process capable of bringing about change, as
states and societal actors merely adjust to the new will of the markets (Watson 2006).
Further, it has been argued that power has shifted away from the preserve of governments and
nation-states to mounting and intertwined private institutions, networks, and complex socio-
political and economic practices which cut across national states (Cerny 2001). Transnational
organisations, multinational organisations, and other private institutions and societal practices
can be seen as holding private authority and acting with a regulatory and controlling capacity,
favouring financial capital over other traditional forms of capital organisation and accumulation.
These IPE accounts tend to suggest a process of convergence towards neoliberal reform and
financial integration. Challenging this position has been the growing literature and research on
financialisation, which has shown that finance remains an incomplete and uneven process (Froud
and Johal 2008). So far, the research on financialisation highlights three sets of tendencies. First,
it notes the changes in corporate governance and the rise of ‘shareholder value’ to favour expe-
dite financial gains, and financial investment over fixed investment in non-financial firms
(Anglietta and Bretton 2001, Epstein 2005, Froud et al. 2000, Krippner 2005). Second, it high-
lights changes in cultural behaviour and actor’s practices by, for instance, looking at rising levels
of consumption expenditure due to increases in household debt, which are not solely related to
mortgage lending (Montgomerie 2006, Langley 2008), or by looking at investors’ transaction
practices in financial markets (Sassen 2005). Third, it illustrates the impact of the expansion
of financial markets in the actions of governments and in the actions and practices of individuals
in ‘daily life’ (Sinclair 2005, Martin 2002). Yet, much of the financialisation debate remains
focused on the experiences of Anglo-American and European countries with little exploration
of how developing countries have encountered and dealt with the growth of global finance
and financial innovation. This paper aims to redress this by looking at how socio-political and
economic competition arises as a result of a tension between meeting the expectations of finan-
cial markets and developing domestic industry in the context of Argentina.
IPE analysis of the impact of financial globalisation on developing countries has largely
remained concerned with general claims on the structural power that financial globalisation
has had on developing economies (for instance, Armijo 1999, Rodrik 2002, Grabel 2003,
Haley 2001, Soederberg 2004, Datz 2004). For instance, Ilene Grabel’s examination of neolib-
eral restructuring contends that international financial institutions, namely International
Monetary Fund (IMF) and World Bank (WB), have played a central role in externally validating
the credibility of the commitment of governments to neoliberal reform (Grabel 2003). This helps
explain why IMF and WB continuously backed up Argentina’s government decision regarding
the implementation of the Convertibility Plan and its maintenance. Even when pressures were
mounting for its sustainability in 1996, the IMF decided to cover up a crisis in the making
and support the commitment of Argentina to continue with its Convertibility Plan and fiscal aus-
terity to keep private investor’s confidence (Rodrik 2002).
Other analyses, for example that of Susanne Soederberg (2004), seeks to understand the
changing economic and political conditions in the developing world in relation to the existing
power structures of the industrialised world, concluding that the Washington –Wall Street con-
sensus on neoliberal restructuring has never been development friendly. It is just a mechanism of
domination by the US over the developing world. Soederberg contends that Washington’s obses-
sion with financial liberalisation has created a contradictory outcome that threatens the power of
the US itself. After the Asian, Russian, Brazilian and the Argentine crises of the late 1990s and
early 2000s, developing countries have been shifting to follow a more Keynesian approach to
policy-making. In Argentina, the 2001 crisis opened the space for the reconfiguration of a
coalition around moderately populist policies, and the introduction of a semi-managed exchange
rate policy that provided the government with the capacity to retain autonomy over monetary
policy, and overall over the financial system, to manipulate competitiveness. Thus, in order to re-
legitimate neoliberal principles in the developing world, the United States is attempting to signal
inclusionary politics at the international level through the establishment of new governance
codes (Soederberg 2004). This new regulatory framework seeks to create a new consensus
amongst financial actors, regulatory institutions and states on how to deal with the contradiction
of the developing world without tempering the magnitude and mobility of transnational finance
(Soederberg 2004). However, giving too much importance to the structural constraints of finan-
cial hegemony precludes how action, interaction, interests and practices shape that same struc-
ture leading to unexpected results.
Works that have looked at how the structural power of institutional investors set the tune for
the liberalisation, privatisation and deregulation of financial systems have been growing. Armijo
(1999) and Haley (2001) have looked at how the demands of global finance have prompted gov-
ernments to start ‘marketing the nation-state to the world financiers’, and suggest that govern-
ments often have to favour economic and political credibility and stability to a commitment
to a broader project of democracy. On its part, Datz (2004) has argued that sovereign credit
ratings play a fundamental role in the considerations of policy making and implementation in
the developing world. These views help to explain on the one hand, why in Argentina, President
Menem concentrated power in the executive and enacted constitutional amendments – that in
turn, gave way to a new set of electoral rules and partisan practices – that allowed him to neu-
tralise opposition to the deepening of Argentina’s neoliberal project (Tommasi 2002). On the
other hand, why the Argentine government considered and implemented policy that would
not harm the country’s risk rating. The aim here was to signal to private investors and the inter-
national community the continued commitment of the Argentine government to the deepening
and consolidation of neoliberalism at the expense of democracy and development (Datz 2004).
However, these views tend to exaggerate the power of institutional investors and the willingness
of governments to attract capital flows. Moreover, they tend to downplay the role that political
competition and distributional conflict plays in the policymaking process. Particularly, when
powerful overlapping and interactive interests exist, which are eagerly trying to capture the
benefits of global finance.
Exchange rate policy and the trade-off between credibility and competitiveness
I argue here that in Argentina the implementation of neoliberal policies in general, and the
Convertibility Plan in particular, reflected an alliance of political power between the state and
transnational financial power at the expense of industry, where the attraction of high yielding
international capital was the main objective. However, the rigidities that the dollarisation
structure generated in a context of open capital markets and financial globalisation shifted the
preferences and interests to support a policy of semi-floating exchange rates and mild ISI initiat-
ives. This shift in Argentine interests’ preferences, in other words, was a result of the impact of
financial globalisation on two sometimes conflicting and sometimes complementary dimensions –
namely, credibility and competitiveness. I will discuss each of these concepts in turn.
Credibility refers first and foremost to the implementation of a specific neoliberal policy
agenda. Policy credibility is the combination of two elements – (a) consistency and (b)
implementation. In other words, for policy to be credible, first of all it must be consistent
over time and across relevant issue-areas. Consistency is crucial both for the coherence of the
policy itself and for developing the political support required for its adoption in the first
place. A lack of coherence can undermine a policy from the start if it leads to confusion
about the policy’s goals and instruments. Of course, a lack of consistency can be useful for
adopting policy measures that reflect an uneasy papering over of underlying distributional,
ideological and other political conflicts. However such measures will lack credibility from the
start and tend to further entrench fundamental contradictions and conflicts among policymakers
and bureaucracies. At the same time, ineffective or skewed forms of implementation (such as
conflicts across different areas of bureaucratic turf or giving preference to particular patron –
client relationships, e.g. corruption) will undermine the credibility not only of particular
policy measures but also of the state in general.
Consistency and implementation problems afflict almost all emerging market countries, in
terms of both the development of policy coalitions and bargaining processes around key
issue-areas like exchange rate policy and the capacity of the state to deliver effective adjustment
and reforms in the context of the challenges thrown up by globalisation – especially the chal-
lenges of competitiveness, as argued below. In Argentina, policy inconsistency during the
1980s and the 1990s exposed governments not only as being corrupt and incompetent, but
also as having weak and dysfunctional political and legal institutions that were hampered by
a range of entrenched and conflicting special interests. This is reflected, for instance, in the con-
tinued ideological commitment to Peronism (the half-a-century old populist tradition) and the
cosy relationship amongst state, business and labour (Gibson 1997). In order to cope with dis-
tributional conflicts and instability, and to vindicate themselves before society, governments
started to offer commitments based on short-term stabilisation programmes that had monetary
policy at its core. The Austral Plan and the Primavera Plan under Raul Alfonsin, and later the
Convertibility System under Menem are some examples. These programmes, in turn, were sup-
posed to result in sustainable low inflation, rather than the endemic inflation and sometimes even
hyperinflation that characterised the initial state of corporatist and protectionist responses,
especially in the 1970s, to the vulnerabilities created by earlier stages of economic and financial
globalisation (see for instance, Pion-Berlin 1985, Dagnino-Pastore 1989, Calvo 1986, Smith
1991). However, these policy adjustments rapidly became too costly, particularly in political
terms – i.e. in terms of the constraints embedded in existing distributional, political (party
and institutional) and ideological conflicts and bargains. Serious reforms were continually dis-
couraged and put off, leading to unsustainable exchange rate levels of, and growing tendencies
to, economic and financial crisis. In this process, governments lost credibility in their commit-
ment to policy. Since then, the credibility issue remains the central problem in political terms
(as was the case of the convertibility system). It is critical not only to policy effectiveness in
technocratic terms, but also to building and maintaining support for particular policies –
whether within the government, among political parties and special interests, and even among
the mass of the population, each of whom may simply ignore policies they do not find credible,
and either continue with entrenched, embedded practices or even find new loopholes and quasi-
legal alternative ways to pursue their interests. Argentina illustrates this point quite clearly. For
instance, partisan practices were developed which gave the executive the ability to purchase pol-
icies by exchanging votes for fiscal resources. This specially benefited Peronists governments
since they had a better grip of their party at the provincial and subnational levels (see for
instance, Tommasi 2002, Calvo and Murillo 2005). Another example at the social level is the
emergence of bartering practices and union-like groups that mobilised against the De la Rua
demanding through formal channels the resolution of the crisis. Competitiveness refers to:
institutions, policies and factors that set the sustainable current and medium-term levels of economic
prosperity. Factors such as, internal and external demand, governance and political stability. . .
[are]. . . important to a competitive economy and, for maintaining and expanding the real incomes
of its people over the long-term. (World Economic Forum, 2005–2006, p. xiii)
In a more open, globalising world, competitiveness has become the dominant policy objective of
most states because without it, other desired economic outcomes – not merely economic growth,
but wider forms of social and economic development too – are likely to be seriously compro-
mised (Cerny 2001). In order to have a more clear understanding of the trade-off between credi-
bility and competitiveness I will examine some of the key arguments within the economic policy
debates of exchange rate policy in general, and its distributional effects in Latin America in par-
ticular. The exchange rate policy issue within the existing international monetary system
remains a core problem and continues to be relegated to familiar debates between fixed and flex-
ible exchange rate regimes1 (Edwards and Savastano 1999).
In three sets of often overlapping literatures – conventional macroeconomic analysis, IPE
and exchange rates debates within Latin America – the problem remains the challenge that
money and currency competition presents for state authority in the governance of monetary
affairs (Cohen 2004). The debate arises by the dilemma confronted by states in the presence
of highly mobile capital. The foundations of these debates stem from the Mundell-Fleming
theorem on Optimum Currency Areas (OCA), and on what in IPE, Benjamin Cohen has labelled
the ‘Unholy Trinity’ (Mundell 1961, Fleming 1962, Cohen 2000, 2004). These analyses empha-
sise the fact that in the presence of high capital mobility there is a dilemma between favouring
monetary policy autonomy (the ability that flexible exchange rates give to governments to
control the supply of money and interest rates in response to domestic conditions) and fixed
exchange rates (that are needed for stabilisation purposes and in the case of developing econom-
ies to signal credibility). However, they cannot achieve both at the same time.
For many developing countries that have suffered high levels of inflation, like in the case of
Argentina, the bargain between credibility and competitiveness is particularly relevant. These
countries seek both monetary credibility (stability), as well as flexibility to prevent the loss of
international competitiveness and avoid a balance of payments crisis. Concentrated production
structures and the lack of a developed financial market present governments with a narrower set
of policy options forcing them, in extreme cases, towards the adoption of a monetary regime
with minimum discretion and total commitment (Mussa et al. 2000). An extreme fixed regime,
such as a currency board or dollarisation, means total commitment, which in turn is supposed
to translate into investment confidence, narrower margins for international borrowing,
reduced fiscal costs, etc., thus encouraging investment and growth (Edwards and Savastano
1999).
In Argentina, the implementation of the currency board in 1991 was introduced to signal
credibility through the commitment to fix the currency to the US dollar. Credibility, however,
came at the expense of competitiveness. Investment and growth did not follow the above
pattern. As we will see later on, the fixed parity created rigidities within the system that
prompted an overvaluation of 33% of the currency and growth to turn negative – GDP
dropped to 24.1 in 2001 (International Monetary Fund (IMF) 2004).
There is an extensive literature that has paid attention to patterns of collective action that
drive market reform in Latin America (see Conaghan et al. 1990, Gibson 1997, Schneider
2004, Schamis 2002, Thacker 2000), within this it is useful to distinguish three sets of
debates that have paid attention to the patterns of collective action and coalition-building that
drive exchange rate policy in Latin America. The first set of debates has focused on the ways
in which the implementation of exchange rate policy has been a response to external factors,
such as increased capital mobility and conditionality (see for instance, Kaufman 1990, Nelson
1989, Kahler 1998, Stallings 1992). A second set of debates has examined the ways in which
political-institutional mechanisms have determined exchange rate policy outcomes. For example,
Maxfield (1992, 1997) has looked at the role of the Mexican central bank in determining
choice. Wise (2000) has looked at the tenacity and ability of political leaders to garner political
support for a chosen regime. A third set of analyses has focused more closely on the distribu-
tional dimension of exchange rates (Haggard 2000, Frieden 1991, Frieden and Stein, 2001).
Haggard looks at how inflationary priorities determine exchange rate outcomes and how
socio-economic actors respond to this (Haggard 2000). Frieden focuses on the distributional
implications of both cross-border capital movements and of various economic policies in the
presence of high levels of capital mobility. He contends that: ‘international capital mobility
tends to remake political coalitions by way of its impact on the effect of national policies’
(Frieden 1991, p. 426). He provides a typology of groups over exchange rates where export-
oriented groups are more likely to support a fixed exchange rate than are domestically-oriented
groups. Likewise, producers of tradable goods will be more prone to favour a weak currency than
non-tradable producers (Frieden 1991, Frieden and Stein 2001). This categorisation, however,
remains a simplistic conceptualisation of state action and overly concerned with state interests.
As we will see in the next section in the context of Argentina, some of the interests that supported
the introduction of Convertibility in the first place resisted the implementation of complemen-
tary policies. Dollarisation, due to its overall effect in competitiveness, became whipsawed
between competing interests that eventually destabilised the whole state in 2001.
The Convertibility Plan in Argentina: distributional conflict and political bargaining

The implementation of the Convertibility Plan sought to promote finance-led growth in
Argentina as a way of coming out of the stagnant growth of the 1980s and early 1990s. The
Convertibility Plan was aimed at achieving a credible monetary regime, the reduction of the
state apparatus and fiscal deficit, and very importantly, the modernisation and strengthening
of the financial market.
Continuous economic crises throughout the 1980s, amid hyperinflation, debt problems,
increasing pressure for wage increases and threat of capital flight, prompted the government
to embark on unprecedented institutional changes. Implicit and explicit pressure on the part
of industrial-financial conglomerates (Schamis 2002) with transnationally linked interests
encouraged Menem’s government to ‘lock-in’ neoliberal policies via the implementation of a
currency board.
The Convertibility Plan, as this neoliberal package came to be known, was introduced in
1991 and has been seen as the cornerstone of the Argentine reform process. The Convertibility
Law, which was passed by Congress, had the objective of tying up each peso in the economy
with a dollar in reserves to establish credibility amongst private and institutional investors,
domestically and internationally (Braga de Macedo 2001. Also see International Monetary
Fund 2004). Pegging the exchange rate to the US dollar would provide credibility in two differ-
ent manners. Firstly, the peg was fixed by law and could only be changed by another law. Sec-
ondly, the Central Bank could only increase the monetary base in line with increases in the
amount of the foreign reserves, and the private citizens could swap their entire holdings of
pesos into US dollars if they wished. This decision also made sense in an economy where the
dollar was already being highly used due to past failed stabilisation experiences and as a reflec-
tion of people’s eroded trust in macroeconomic policymaking (Heymann and Kosacoff 2000).
This de facto dollarisation also reflected Hausmann’s (1999) ‘original sin’ theory that Latin
American countries possess ‘a national currency that cannot be used by local firms [and house-
hold], abroad or at home, for long-term borrowing’ (p. 2).
Convertibility saw some successful years from 1991 to 1995. Stability, along with the
revived privatisation and liberalisation programmes, brought significant flows of foreign
capital into the economy (Rodrik 2002). A rapid accumulation of international reserves and
an increase in the monetary base, allowed an expansion of the supply of credit to the private
sector. Financial intermediaries’ liquidity rose and with it their lending capacity. Low levels
of indebtedness by firms and households at the beginning of the nineties helped in this
process (Calcagno et al. 2001). Money creation was reflected in the amount of deposits held
in the banking system – the ratio of dollarised deposits to total deposits was 58%.2 Stability
was achieved in the financial system and Argentina experienced an economic boom, having
an average annual growth rate of 9% (IMF 2004).
Financial interests at play: the making of a new alliance

The political aspects of the implementation of the Convertibility Plan should not be underesti-
mated. Hyperinflation served as a catalyst for the convergence of conflicting interests towards a
common objective: stability (Sáinz and Calcagno 1992). A broad consensus emerged in all
sectors of society in favour of low inflation, which allowed the creation of an anti-devaluation
coalition. Despite this broad consensus, the implementation of reform had its limits and needed a
pro-reform government capable of mobilising support and neutralising opposition (Tommasi

et al. 1999).
In 1989, amidst deep economic, political and social crisis, an important political agreement
was reached between the two most representative Argentine political parties: the right-of-centre
Radical Party (UCR) and the Partido Justicialista – which has been, since its foundations in the
1930s, strongly linked to the working class and the unions, and has adhered to a populist ideol-
ogy that came to be known as Peronism.
The agreement was to move forward elections in order to cope with economic crisis. The
agreement reached was a watershed in Argentine politics. It was a move not only at maintaining
a nascent democratic regime and to protect it from falling back into the traps of authoritarianism,
but most importantly, at stabilising the economy and to finally consolidating neoliberalism
(Rapoport 2000). Previous attempts at deepening neoliberal reform were curtailed by both the
stronghold of Peronists in Congress and the power and organisation of the unified labour move-
ment and the provinces (Starr 1997). As a result of these past experiences, the dominant indus-
trial-financial interests of Argentina felt the need of a greater control of, and access to, the state’s
institutions and to the process of policymaking than what they had before if they were to secure a
consistent programme of neoliberal policies (Ostiguy 1990). It is not surprising then, that the
campaign and successive election of a Peronist candidate as president of Argentina was scepti-
cally received. After all, Carlos Menem was a wholehearted Peronist that followed a tradition-
ally populist campaign promising raises on wages, salaries, job creation and a unilateral
moratorium on the foreign debt (Teichman 2001). However, Menem needed the financial
backing of the dominant industrial-financial interests to stabilise the economy. Thus, here is
where looking at alliances and coalition-building becomes illuminating. The dominant indus-
trial-financial interests saw Menem as a potential ally that had the support of the traditionally
more marginalised sectors of society and that were the greatest threat to the implementation
of neoliberalism. Menem saw these dominant industrial-financial interests as the ones with
the necessary recourses to stabilise the economy (Etchemendy 2001).
Thus, a successful new coalition emerged that included the dominant industrial-financial
interests – e.g. the largest agricultural and commercial firms, represented by the Unión Industrial
Argentina (UIA), the Sociedad Rural Argentina (SRA) and the Camara Argentina de Comercio
(CAC) – who amongst them controlled the resources and enjoyed international credibility (Starr
1997). Middle, lower-middle and working classes were not only desperate to get rid of the devas-
tating effects of hyperinflation, but also wanted democracy. And the domestically-orientated
(mainly small and medium enterprises) were already damaged by previous attempts at neoliber-
alisation (Schamis 2002). Forming a coalition with this dominant industrial-financial
sector would make it more likely that capital would be invested in Argentina instead of taken
abroad – fixed investment-GDP ratio in Argentina had fallen from 26.6% in 1980 to 14.2% in 1990.3
However, this broad consensus had its limits. Opposition began to mount when Menem
announced the appointment of the CEO of Bunge and Born, one of the oldest industrial-financial
conglomerates in Argentina, to the Ministry of Economy (Gibson 1997). This was seen as the
encroachment of financial power on the state and its institutions (Ostiguy 1990). Once in
power, Menem’s administration reduced the bargaining power and neutralised powerful consti-
tuencies entrenched in the old-centre model of corporatist ISI via party restructuring, rewards
and compensations (Etchemendy 2001). However, even when the Argentine government signifi-
cantly undermined the power of the corporatist arrangement, there were some ‘illiberal enclaves’
left. For instance, the relationship between provincial governments and central government
regarding fiscal restructuring was left untouched. Argentine federalism concentrated revenue
at the national level, allowing much of it then to be transferred to the provinces and municipa-
lities – under a constitutional law called co-participation. President Menem, by constitutional
amendments, concentrated power in the executive allowing the development of electoral rules
and partisan practices that made provisional governors very powerful actors in the national
scene. The governor’s dependency on ‘common-pool’ funds from the federal state created a
practice in which votes in national Congress were exchange for money to the provinces
(Tommasi 2002).
Internationally, the Argentine government, through the implementation of the Convertibility
Plan, strengthened its linkages. The administration had a close working relationship with the WB
and IMF, which created a golden opportunity for the deepening of the neoliberal experiment in
Argentina, while also providing the needed financial backing. At the same time, and to conso-
lidate transnational capital, the government realised that in order to proceed with an effective
scheme of privatisation they needed to create the conditions for a strong financial market so
as to avoid a complete takeover by private investors (Pang 2002). So, the small and underdeve-
loped Argentine stock market was modernised and expanded under the auspices of the Argentine
Securities Exchange Commission CNV (Comisión Nacional de Valores). The privatisation of
State Owned Enterprises (SOEs), together with the deregulation of the stock market and
overall the deregulation of capital markets, increased the supply of stocks and bonds in the
Argentine market. The capital market was impacted positively as well by the massive influx
of financial investment from abroad that turned Argentina into an investment grade emerging
market (Rapoport 2000). Amongst the winners of the privatisations and the deregulation of
the Argentine market were the industrial-financial conglomerates. Private sector capital led
the way. The net result of private sector capital between 1990 and 1993 was US$26,040
million, while in the period of 1982 to 1990 was US$8,690 million.4
In this generally positive context, the Convertibility Plan was seen by the international com-
munity as an institutional innovation that practically eliminated discretion in the management of
the exchange rate, while substantially limiting the use of passive monetary policies, in this way
offering stability and credibility. In retrospect, attention focused far more on the temporary
boom than on the permissive elements that remained in both the convertibility system itself,
and the related areas of fiscal and labour reform.
Menem started losing supporters and his coalition weakened by the beginning of 1996. This
was a result of his intention to get re-elected in 1995, his clientilist character and increased sizing
of power in the executive (Politica y Actualidad 2005). The growing public debt, the overvalua-
tion of the currency and big deficits in the current account had very negative effects in political
terms. The economic contraction produced a reduction in tax income. The tight fiscal policy,
together with the constraints posed by the current monetary regime, made the coalition to
loose cohesion and become fragile due to the inability of the government to face the demands
of its supporters any longer. The government found itself facing a weak banking sector,
limited access to credit, lack of international competitiveness and high unemployment rates.
Small and medium domestically-orientated businesses, consumers and workers were abandoned
in their requests (Starr 1997).
We will analyse the breakdown of the coalition in the following section.
Credibility vs. competitiveness: the contradictory outcomes of dollarisation

A key argument presented in the introduction suggests that there is a real tension between
achieving credibility – with respect to financial capital and institutions – and competitiveness
– supporting domestic production. This, in the context of an extreme policy measure such as
dollarisation (a short-term strategy that if not accompanied by other relevant policy reforms
such as fiscal policy, labour policy and regulatory reform) will produce rigidities and will
lead to crisis, destabilisation and coalition breakdown. Ironically, the same coalitions that sup-
ported that dollarisation will resist complementary reform undermining both stable growth and
coalition maintenance. The outcome, far from being a stable neoliberal regime supported by a
new effective coalition, may be heightened instability and the collapse of the original coalition.
As we will see in the discussion below, in Argentina, the lack of political consensus at home
impaired the capacity of the Argentine ruling class to provide a solution to a clearly impending
crisis. This dealt a fatal blow to credibility. This problem, combined with the lack of a positive
response from the international financial community, made decisive action on economic policy
impossible to achieve and implement, throwing Argentina into a crisis that opened the space for
a reconfiguration of a coalition around moderately populist policies, and the introduction of a
semi-managed exchange rate policy that provided the government with the capacity to retain
autonomy over monetary policy and to manipulate competitiveness, but left credibility a
salient issue.
As seen in the previous section, one of the most important goals of the implementation of the
Convertibility Plan was to deliver confidence to private investors for attracting foreign capital to
promote economic growth. The results were positive at first, but the first signs of decline com-
menced after the Mexican crisis of 1994. The Mexican crisis provoked a loss of international
reserves in the arcs of the central bank. This loss was due to a combination of the demand for
dollars by both private agents and international investors, and individuals switching from
pesos to dollars through the banking system (Calcagno et al. 2001). The first problem that the
government encountered was the reality of a loss of lender of last resort. As already stated,
both the Mundell-Fleming theorem and the ‘Unholy Trinity’ emphasise the fact that in the pre-
sence of capital mobility there is a trade-off between favouring monetary policy autonomy and
fixed exchange rates; they cannot achieve both at the same time (Mundell 1961, Cohen 2000). In
theory, the independent Central Bank was unable to respond to the vulnerability of the market by
issuing currency (in principle limited under the Convertibility system). However, in order to deal
with the depleting of reserves and to avoid a banking crisis, the government and central bank
responded by successfully manipulating monetary and financial norms. First, a new scheme
of ‘minimum liquidity requirements’ was introduced for the total of liabilities through securities
for the banks (Calcagno et al. 2001). Second, a safety net for private banks through the state-
owned Banco de la Nación was established for those banks facing illiquidity. Banco de la
Nación was helping institutions suffering from financial shortages by purchasing a portion of
their portfolios. Third, the Central Bank announced the establishment of a Capitalisation
Trust Fund, which would be financed through World Bank and IMF loans and by the emission
of an Argentine bond backed by local financial institutions and by international financial insti-
tutions. Through its more active involvement, the Central Bank was able to exercise decisive
influence to control the banking crisis and to avoid the collapse of various financial institutions
(Calcagno et al. 2001).
The government’s response was to relax the discipline of the system rather than enacting
rigorous reform. This was a skilful manoeuvre of ‘politicking’ the rigidities of the currency
board and making the regime seem stronger than what it really was. Moving towards
the implementation of reforms that could jeopardise credibility was not even considered as an
option. In fact, the implementation of the measures described above was also seeking the
strengthening of the financial sector by opening the system to international banks. The share
of deposits held by international banks rose from 16% in 1994 to 48% by October 2000
(Fundación de Investigaciones Económicas Latinoamericanas (FIEL) (1995, 2002). However,
a still underdeveloped financial system (in comparison to industrialised countries that is charac-
terised by equity market capitalisation, total domestic credit, private sector credit, etc.) with a
low level of domestic financial intermediation and little recourse to equity financing, prompted
Argentina to rely excessively on foreign lending thus adding up to the vulnerabilities of the
system (IMF 2004).

The government and Central Bank decision to find resources abroad was a decisive factor in
containing an exchange rate crisis and restoring international reserves. Investor’s confidence
returned. In 1996, Argentina received US$4285 million in direct investment and US$4701
million in portfolio (Pang 2002). However, the economic and political situation gradually dete-
riorated and by 1998 the Convertibility system became too rigid leaving Argentine policymakers
with few tools to respond domestically and insulate the country from various external events.
Domestically, Argentina was effectively a dollarised economy. Both the monetary and the
financial system were dollarized.5 Almost 60% of assets and liabilities in the banking sector
were dollar-denominated (IMF 2000). By the end of the Convertibility, two-thirds of the deposits
and bank credits were denominated in dollars (IMF 2003). A dollarised economy together with a
loose and weak fiscal policy was playing a central role in exacerbating the crisis.
Consistency and efficiency in policy implementation was at odds with IMF’s recommen-
dations. Loose fiscal policy was the major issue between federal government and provinces.
Throughout the 1990s, fiscal authorities were incapable of adjusting to the discipline of
budget constraint – due to entrenched fiscal practices – which led the public debt to grow
along an explosive path, inducing the overvaluation of the peso. This fact together with the
US-dollar fixed monetary regime and the changes to the trade regime ended up in almost
non-revenue generation, thus turning the fiscal account into a time bomb (for a detailed discus-
sion see Heymann and Kosacoff 2000, Diaz-Bonilla and Schamis 2001, Tommasi 2002). The
total public debt-to-GDP ratio was 29% in 1993, 41% in 1998 and a staggering 64% by Decem-
ber 2001 (IMF 2004). Moreover, provincial banks were badly damaged after the Mexican crisis,
which prompted provincial governments to resort to other sources of credit such as debt
issuance. Debt issuance took place on the international and national markets, and the resources
obtained were used to finance public expenditure (Heyman and Kosacoff 2000). Continued
access to debt financing led in some instances to provincial bankruptcy and eventually to the
creation of an array of quasi-currencies (The Financial Times 2002, p. 12).
Externally, a fall in international prices lowered the demand of significant amounts of main
export staples, such as soybeans, that were ready in the Argentine market to be exported, thus the
price of Argentine commodities stagnated (World Bank 2003). Financial contagion, as a result of
the Asian and Russian crisis, had an important role in deteriorating the current accounts. Another
external cause building up the vulnerabilities of the Argentine economy was Brazil’s crisis. The
devaluation of the Real in early 1999, undercut argentine supplies to this major trading partner –
and provoked imports to rise – hindering the possibilities of many Argentine industries to stay
competitive internationally (IMF 2001). Economic growth turned negative in 1999, international
investors started to show signs of anxiety and the constant deterioration of the social fabric was
becoming evident.
The collapse of the strategy: no coalition, no consensus, no credibility

The Argentine government was finding it impossible to embark on effecting reform programmes
as a result of three main issues: (a) a highly damaged credibility of the Argentine government;
(b) a growing polarisation of interests and divergent views of priorities in economic policy; and
(c) an excessive financialised economy.
However, the decision by the government to keep economic ‘opening’ to the extreme was
considered essential, after all ‘the fate of the convertibility remained fundamentally based on
the massive entry of foreign capital, either through new credits or through the purchase of dom-
estic assets’ (Schvarzer 2006, p. 79). The government knew that this measure involved specu-
lative capital that unequivocally sought short-term profits and not investment for long-term
growth.
The first big blow to the government’s credibility came with the break-up between President
Menem and Economy Minister Domingo Cavallo. This sent negative messages to international
markets, and created distrust amongst different sectors at home with regards to the continuation
of Convertibility. The main concern was coming from Argentine households (both middle and
working classes) who had acquired US debt – e.g. mortgages, bank loans, credit cards – and
who already suffered past experiences with devaluations.6 The second blow came in the 1998
elections when Menem decided to run for a third term in office. The decision to seek a third con-
stitutional term was opposed by citizens but more importantly by its own Partido Justicialista
members. Allegations of corruption and clientilism became a major issue. Menem sought to
manipulate allies and member party followers by increasing spending and slowing down
reforms. However, his tactics did not work and he lost the support of powerful provincial gov-
ernors such as Eduardo Duhalde (Tedesco 2001, Tommasi 2002). Thus, the erosion of Menem’s
traditional support base left him with no coalition for achieving a third term (Tedesco 2001).
Fernando de la Rúa came to power in 1999 via a coalition government, Alianza, that from the
beginning was fragile. Alianza was formed by two left-of-centre political parties: Union Civica
Radical (UCR) and Frente de Pais Solidario (FREPASO). Alianza controlled the lower house of
Congress but the Senate and the three largest and most influential Provinces remained Peronist
(Tedesco 2001, Pang 2002). Internal differences regarding economic policy initiatives to come
out of the crisis were becoming self-evident. During his campaign, de la Rúa promised a soft-
ening of neoliberal reforms, but there were reforms implemented in labour markets and the
fiscal sector respectively that were seen as a deepening of neoliberalism and the consolidation
of financial capital. For example, a reform in pension funds was implemented with very high
costs; pensions were transferred to a system of private individual accounts, where the govern-
ment was still paying pensions without receiving contributions (The Economist 2002). The intro-
duction of these reforms exacerbated the tension within de la Rua’s coalition; after all, the
agenda of the Alianza was to deepen democracy – i.e. increase democracy, transparency,
fight corruption, re-build institutions and invest in social development. Two further blows to
the administration’s credibility were the stepping down of some of the most respected
members of his cabinet, and the appointment of Domingo Cavallo as the Economy Minister
(Weyland 2002). The resignation of Vice-President Carlos Alvarez was due to the lack of enact-
ment of social policies that were already agreed on. The resignation of Jose Luis Machinea, the
Economy Minister, was his decision to maintain the Convertibility as the only viable option from
coming out of the crisis (Tommasi 2002). The appointment of Cavallo to the Ministry of
Economy was interpreted as a step further to neoliberalisation (Weyland 2002).
The governments’ failure to gather support among the powerful elements of his party, the
UCR, from members of his Alianza, as well as from the opposition Peronists, made it impossible
to generate political consensus.7 The lack of political consensus and the executive’s indecision on
implementing policy solutions to steer the economy out of the crisis had a devastating impact on
market confidence. Country risk soared and in early 2000, the IMF agreed on a loan programme
that entailed funds for US$14 billion to be disbursed over three years in an attempt to restore credi-
bility (IMF 2004).
The different sectors responding to a government without credibility to overcome the crisis
actively considered two choices, which included a free floating exchange rate regime or the full
dollarisation of the economy. However, dollarisation as a solution lacked quorum. There was a
heated debate and serious discussions amongst policymakers, academics, the dominant econ-
omic groups, even polls to measure the public opinion, on whether or not to follow the path
of Ecuador and dollarise de jure (see for instance La Nación 1999, 2001, El Cları́n 2001a,
2002a, 2001b). There was even behind-the-door consultation between Argentine policymakers,
US authorities and the IMF regarding the dollarisation of the economy. The idea of dollarisation
was eventually discarded by officials from both countries (Blunstein 2005).

Social and political conflict continued to soar, and demands for clear solutions continued
to increase, as it became evident that the government was ineffective at providing strategies
to overcome the crisis. Trade unions demanded a controlled devaluation of the peso to avoid
a further impact on wages and unemployment.8 Demonstrations became the norm of the day
with unemployment reaching 17% by 2000 (Confederación General del Trabajo (CGT)
2001). Demonstrations came not only from organised labour but also from middle classes and
the informal sector – which became a well-organised force through union-like organisation
such as the Movimiento de Trabajadores desocupados (MDT), Movimiento Teresa Rodriguez,
and Movimiento Independiente de Jubilados y Desocupados (MIJD).9 Income inequality and
poverty reached levels above the ones seen during the hyperinflation years in the decade of
the 1980s (Bezchinsky et al. 2007).
The principal Argentine business associations10 got together with the CGT in mid-2001, and
put together a proposal favouring a controlled devaluation, accommodating the exchange rate to
the conditions of the Argentine economy (El Cları́n 2001b). By 2001 the currency was 33%
overvalued so in order to foster competitiveness and growth – fixed investment averaged
a low 18.5% between 1991 and 2001 – the peak associations saw the end of Convertibility
as the only viable solution (World Investment News 2001). Small and medium-sized local man-
ufacturing firms were some of the most affected by the crisis since low productivity (unskilled
labour, obsolete machinery, rigid management structures, difficult access to credit, etc) and
increased competition from transnational corporations and the dominant industrial-financial
conglomerates were squeezing them out of the market (Kosacoff and Bezchinsky 1999). Indus-
trialised agriculture also suffered. Farmers’ profit margins fell by half between 1992 and 1999,
making it difficult for many to pay off bank loans for machinery, chemical inputs and seeds
(FIEL 2002).
The most powerful Argentine industrial conglomerates11 openly requested to raise tariffs to
increase competitiveness but still to maintain the Convertibility scheme. They argued that by
keeping Convertibility in place, economic actors’ confidence could be restored and the cost
of capital, which was their main problem, reduced (El Cları́n 2001c). The government responded
by introducing the Competitiveness Law, which gave preferential exchange rates for exports in
an attempt to boost competitiveness.
The financial sector was ambivalent regarding what solution was best, dollarisation or not,
although concerns were growing since the Argentine economy presented an ample dollarisation:
‘around 70% of loans and deposits are denominated in US dollars’.12 Up to mid-2000 there was a
wide perception amongst local banks and financial institutions that the Argentine financial sector
was very solid and could fence well the jitters of the international market (World Investment
News 2001). However, high dollarisation exposed financial institutions to credit risk and thus
to liquidity risk and country risk in the event of devaluation – a fear shared by several financial
institutions and the Central Bank before the crisis since both corporations and households bor-
rowed extensively in dollars.13 There was recognition amongst the financial sector that keeping
Convertibility was important for international investors’ confidence, and that other fundamental
reforms would need a stronger political consensus to get resolved; that was beyond de la Rúa’s
government.14
The lack of a strong coalition made it difficult to achieve a consensus regarding effective
economic policy implementation exposing the credibility of the government in all the conduct
of the political economy. It also reflects the tension between meeting the expectations of finan-
cial markets and developing domestic industry.
Conclusion
In the case of Argentina, capital mobility not only imposed a trade-off between an independent
monetary policy and exchange rate stability – what Cohen (2000) has labelled the ‘unholy
trinity’ – but what is more, it posed governments with a dilemma between competitiveness
and credibility. Argentina faced a clear lack of credibility and in trying to restore it adopted a
dollarised scheme in the form of the Convertibility Plan. A key issue that had to be taken into
account was that in their need to cope with and control the financial globalisation process, gov-
ernment, industry, the banking sector and some individuals contracted enormous foreign cur-
rency liabilities (mainly in US dollars). The weakness of the Argentine peso as international
currency made it impossible for banks, industries and individuals to borrow in pesos for long-
term objectives. This is an example of the problem of ‘original sin’ (Hausmann 1999), i.e. the
phenomenon of asset and liability dollarisation.
A crucial argument put forward in the article was the assertion that the very processes of pol-
icymaking, distributional competition and conflict have been to a significant extent transformed
by globalisation, especially financial globalisation. Moreover, the assertion made here that there
is a growing tendency for distributional conflicts to arise not only between ‘domestic’ interests
(economic, social or political) but also between them and various ‘globalising’ interests. Thus
the scope for distributional conflicts to cut across the state and make possible to embark on effec-
tive reform programmes – creating huge problems of both credibility and competitiveness, as
well as between them – is magnified several times over. Clear evidence of this issue was the
way the authorities in Argentina, specifically central bankers and treasury, finance and
economy ministers, responded to international capital market conditions by privileging credi-
bility and stability over employment and growth. In doing so, the government implemented
the monetary policy (and overall economic policies) that was most favourable to the interests
of the domestic internationalist community and international capitalist class, seeking market
confidence and stability in order to win their support to pursuit and sustain economic growth
and development. Paradoxically, though, Argentina needed to retain some of the support tra-
ditionally derived from the import-oriented domestic sectors, the rural sector, and rural and
urban constituencies, which were, historically, the powerful actors that would favour a wage-
labour nexus characteristic of the Fordist paradigm. Hence, the Argentine government tended
to put together an eclectic coalition based on short-term strategies. This in turn created – and
still creates – policy tensions reflecting the fact that the groups’ sets of interests were in them-
selves conflicting, hence creating a policy dilemma, and a coalition dilemma arising from the
trade-off between favouring competitiveness interests and stability interests. What is more, in
order to keep some of the ISI constituencies satisfied there has been a frequent reversion to popu-
list politics that has driven business and financial elites into opposition, and populist responses
have generally exacerbated political crisis rather than resolved it. This helps to explain why it is
that the elements of the neoliberal reform process in Latin America in general that are still
proving the most problematic politically are: (a) fiscal retrenchment; (b) labour market
reform; and (c) regulatory reform. These reforms are regarded as being needed in the longer
term to affect structural changes and subject import-competing businesses, public workers,
workers, rural sectors and pensioners, to the new neoliberal discipline.
Dollarisation in Argentina, due to its overall effect on competitiveness, became whipsawed
between competing interests that undermined not only the credibility of the policy, but it
prompted a massive crisis and the destabilisation of the state in 2001. This is evident because
the coalition that supported dollarization – via the currency board – in the first place reflected
an alliance of state power with financial power at the expense of industry, where the attraction of
highly yielding international capital was the rationale. However, the rigidities that the currency
board generated in a context of open capital markets and globalisation shifted the preference and
interests to support a policy of floating exchange rates. Moreover, non-financial actors, both pol-
itical and societal, did not, and still do not, easily adjust to changes originated in global finance.
The case of Argentina is an example of the difficulties confronted by such actor in trying to cope
with challenges brought about by global finance.
Notes
1. For a discussion on floating exchange rate see, for example: Fleming 1962, Macdonald 1988,
Friedman 1996. For a discussion on fixed exchange rate see: Frankel 1999, Obstfeld and Rogoff
1995.
2. Data available from Banco Central de la Republica Argentina, Estadisticas e Indicadores, available at
www.bcra.gov.ar.
3. Ibid.
4. Author’s calculations based on data from the Central Bank and INDEC both available at:
www.bcra.gov.ar and www.indec.gov.ar. In order to calculate the net private result I considered
Privatization and FDI, Bonds and Loans, Trade credit, and Other.
5. Interview with Federico Braun, President of Banco Galicia, November 2001; Elsa Esposito, corporate
risk management Citibank Argentina; Beatriz Biasone, Central Bank.
6. Interview with Federico Braun, President of Banco Galicia, November 2001.
7. Interview with Alberto Yaregui, Deputy, bloque de la UCR, Buenos Aires, Argentina, November 2001.
8. Interview with several members of the CGT Azopardo, Buenos Aires, Argentina, December 2001.
9. For a more detailed explanation of these movements see for instance: Edward Epstein (2006) “The
Piquetero Movement in Greater Buenos Aires: political protest by the unemployed poor during the
crisis” in E. Stein and Pion-Berlin, eds. Broken Promises? The Argentine crisis and Argentine democ-
racy, Oxford: Lexington Books. Luis Oviedo (2001) Una historia del movimiento piquetero: de las
primeras coordinadoras a las asambleas nacionales. Buenos Aires: Editorial Rumbos. Maristella
Svampa y Sebastian Pereyra eds (2003) Entre la ruta y el barrio: la experiencia de las organizaciones
piqueteras, Buenos Aires: Editorial Biblos. Norma Giarraca (2001) La protesta social en Argentina:
Transformaciones económicas y crisis social en el interior del paı́s, Buenos Aires: Editorial
Alianza. Raúl Zibechi (2003), Genealogı́a de la Revuelta: Argentina y la sociedad en movimiento,
La Plata: Letra Libre. Guillermo Almeyra (2004) La protesta social en la Argentina, 1999–2004:
fábricas recuperadas, piquetes, cacerolazos y asambleas populares, Buenos Aires: Continente Pax
(particularly ch. 6).
10. Amongst the business associations was one of the most powerful: the Industrial Argentine Union
(UIA); Argentine Construction Chamber (CAC); and the Argentine Rural Confederation. Amongst
the business sector were the influential Technit; Arcor; Perez Companc and Loma Negra.
11. Amongst the large industrial conglomerates were the influential Technit; Arcor; Perez Companc and
Loma Negra.
12. Interview with Federico Braun, President of Banco Galicia, November 2001.
13. Ibid.; Elsa Esposito, corporate risk management Citibank Argentina; Beatriz Biasone, Central Bank.
14. Interview with Federico Braun, President of Banco Galicia, November 2001; and Elsa Esposito, cor-
porate risk management Citibank Argentina.
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Contemporary Politics: To Cite This Article: Mariana Jiménez-Huerta (2008) Neoliberal Restructuring, Financialisation

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Neoliberal restructuring, financialisation and socio-political competition

Queen Mary, University of London, UK

In Argentina, as in many transition economies, the maintenance of monetary management and

ISSN 1356-9775 print/ISSN 1469-3631 online

Neoliberal restructuring and financialisation in Argentina

The Convertibility Plan in Argentina: distributional conflict and political bargaining

Financial interests at play: the making of a new alliance

pro-reform government capable of mobilising support and neutralising opposition (Tommasi

Credibility vs. competitiveness: the contradictory outcomes of dollarisation

system (IMF 2004).

The collapse of the strategy: no coalition, no consensus, no credibility

was eventually discarded by officials from both countries (Blunstein 2005).

FIEL, 2002. Indicadores de Coyuntura, Préstamos y Depósitos (Sector Privado), Fundación de

Venezuela. Princeton: Princeton University Press.

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