Working Paper
Country Study 12

Argentina has had successive stabs at stabilization since the mid-1970s. Throughout most of this time it has had to wrestle with acute problems of hyperinflation, capital flight, rising external debt, a stop-go pattern of output, and for a long time a heavily depressed level of real wages. It has tried orthodox stabilization policies, a more monetarist approach, and what can perhaps be described as 1 ad hocery'.In June 1985 these efforts culminated in the Austral plan, a type of shock treatment to change inflation expectations. Essentially, this consisted of a price freeze, tight control of the monetary and fiscal aggregates, and a currency reform.Initially, the results were encouraging. Inflation fell, output recovered and the trade balance was in surplus. But short-run success will be converted into long-run stability, the authors argue, only if international economic conditions prove helpful and, in particular, if the burden of servicing Argentina's heavy external debt is eased by an adequate flow of fresh credits.