lly reflecting the political position of the commentator. Certainly, also as a consequence of the anguish and frustration produced by the hyperinflation, a consensus has developed in Argentina that the government has had a considerable responsibility for this state of affairs. Either by trying to control the economy by prescribing prices, salaries, interest rates, exchange rates, etc., thus discouraging new investments, or by managing inefficiently a significant part of the Argentine economy that used to be owned by the state. As from 1989, the government has carried out a remarkable program consisting of a combination of fiscal discipline, sound monetary and financial policies, rescheduling of the foreign debt and structural changes in areas such as trade liberalization, privatization and deregulation, which have strengthened the Argentine economy.Inflation and interest rates have fallen dramatically. Annual inflation measured in consumer prices fell from 84% in 1991 to -1,8% in 1999. Salary increases must be consistent with increases in productivity. Industrial production increased by 23.4% between 1990 and 1995.Regarding the country’s monetary policy, in April 1991 the Argentine government enacted a convertibility law as the starting point of a strict stabilization program. This law requires that local currency be fully supported by foreign reserves and gold at a ratio of 1:1 (one peso per one U.S.$.), makes indexation not legally enforceable, and allows contracts to be entered into and legally enforced in foreign currency. The “Peso” became the legal currency.A stable and hard local currency virtually eliminates the risk involved in contracting in foreign currency. Legal protection for contracts made in foreign currency gives even greater security to investors. They can either contract in local currency, knowing that if the free-market exchange rate exceeds 1 peso for US$1, the government is committed to sell US do...
