Post-Default Argentina: Access to International Capital Markets and “Unconventional” Economic-Policy Choices

The sovereign default in 2001 has brought about in Argentina an era of convoluted relationships with the international financial markets, characterized by large swings in the orientation of macroeconomic policy-making. Focusing on the determinants of supply and demand for external borrowing, this article shows that the country did have access to international capital markets during some periods, particularly after the debt restructuring agreement of 2005. Furthermore, certain episodes of decline in net capital inflows did not arise from constraints on the supply side, but were the consequence of policy choices: a commitment to reducing outstanding sovereign debt, and the imposition of foreign capital entry regulations. The strengthening of certain “unconventional” policies since 2011 is certainly explained by foreign currency shortages – in particular the monetization of fiscal deficits and the imposition of strict foreign exchange controls. Yet, some structural factors have also underlined the domestic authorities' motivations: a quest for autonomy in economic policy through financial autarky, and the “fear of floating” – a reluctance to devaluate driven by the potential impact on domestic inflation.