Volume 43, Number 171,
October-December 2012
Argentina and Brazil:
Macroeconomic Challenges1
Eduardo Bastian* and Elena Soihet**
Date submitted: September 25, 2011. Date accepted: March 19, 2012
Abstract

In the 1990s, Argentina and Brazil followed similar economic strategies. However, the currency crisis that Brazil went through in 1998-1999 and Argentina suffered in 2001-2002 served as an inflection point, because after these crises, both countries opted for very different macroeconomic regimes. This article seeks to discuss the experiences of Brazil and Argentina under different macroeconomic regimes. Specifically, we aim to analyze the following: 1) the key characteristics of both macroeconomic regimes; 2) the reasons why Argentina and Brazil opted for different strategies following their respective currency crises; 3) the results obtained by both countries in the past decade; 4) the main challenges that these two regimes face today.

Keywords: Argentina, Brazil, macroeconomic regimes, inflation, growth
INTRODUCTION

In the 1990s, Argentina and Brazil followed similar economic strategies. On the one hand, following years of high inflation, both countries achieved price stability with plans based on some form of an exchange rate peg.2 On the other hand, beyond similar stabilization policies, both countries adopted a series of liberalizing reforms in keeping with recommendations from the Washington Consensus during this same decade. These reforms were a failure in terms of economic growth, and even worse, the adoption of exchange rate pegs left both countries extremely vulnerable to speculative attacks. The result was that Brazil and Argentina suffered currency crises at the end of the 1990s and the beginning of the twenty-first century.

The currency crises marked a transformation of the trends observed in the 1990s. In other words, Brazil and Argentina adopted different strategies following their respective crises. Argentina emphasized economic growth and industrial development based on a macroeconomic regime centered on a stable and competitive exchange rate. Brazil gave priority to price stability based on three goals for inflation, flexible exchange and primary surplus goals for fiscal accounts.

This article seeks to discuss the exact differences between the regimes adopted by Brazil and Argentina following their respective currency crises. Specifically, we aim to analyze the following: 1) the key characteristics of both macroeconomic regimes; 2) the reasons why Argentina and Brazil opted for different strategies following their respective currency crises; 3) the results obtained by both countries in the past decade; 4) the main challenges that these two regimes face today.

This article is divided into three sections, as well as an introduction and conclusion. The first section introduces the two macroeconomic regimes. The second section discusses the reasons why Argentina and Brazil opted for different strategies and also presents the results they obtained by analyzing the strengths and weaknesses of both macroeconomic regimes. Finally, the third section provides a general evaluation of the results, and discusses current economic challenges for Argentina and Brazil and the future of both macroeconomic regimes.

1The authors appreciate comments and suggestions from André Modenesi, Antonio Licha, Federico Pastrana, Franklin Serrano, Luiz Fernando de Paula and Ricardo Summa, relieving them of any responsibility for the content of the final work. The authors would also like to thank Margarida Gutiérrez for providing data regarding recent changes in the Brazilian currency market. Finally, we would also like to thank the anonymous journal panel for their comments and suggestions.

*Adjunct Professor at the Instituto de Economía de la Universidade Federal de Rio de Janeiro (ie/ufrj). E-mail: eduardobastian@ie.ufrj.br

**Adjunct Professor at the Universidade Federal Rural de Rio de Janeiro (im/ufrrj ). E-mail: e.soihet@globo.com

2Despite this similarity, Argentina opted for a more radical path than Brazil, as it adopted a currency board regime, while Brazil followed an exchange rate band regime.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Feb 23th, 2018.
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