Book Reviews

How things went wrong in Argentina

Paul Blustein

And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina

PublicAffairs, New York, 2005, 178 pp., $27.50 (cloth).

Paul Blustein has done it again. In 2001, he published The Chastening, a fascinating account of the currency and financial crises that began with the collapse of the Thai baht in 1997. Based heavily on interviews with the main participants-officials of the crisis-stricken countries, those of the major industrial countries, and those of the IMF-it sought to explain how and why so many costly mistakes were made in responding to the crises. In his new book, And the Money Kept Rolling In (and Out), Blustein turns to the Argentine crisis of 2001, relying once more on interviews with the key participants, but rounding out his story with vivid accounts of the terrible hardships suffered by the victims of the crisis.

Yet Blustein's subtitle, which suggests outsiders are to blame for Argentina's fall, is rather misleading. There is much in the book about Wall Street, especially about the all-too-familiar conflicts of interest besetting Wall Street analysts in investment banking firms that peddled Argentine debt, as well as the perverse incentives facing institutional investors who feared being "underweight" in the country's debt. There is much in the book about the IMF and the debates within the Fund as Argentina's plight grew graver. And Blustein is perfectly right to argue that Wall Street and the IMF made big mistakes. Wall Street, in the person of David Mulford, proposed a $15 billion "megaswap" that had the effect of reducing Argentina's maturing debt but hugely raised the interest cost of subsequent debt service. The IMF, in the person of its Managing Director, Horst Köhler, gambled imprudently in August 2001, when, with the support of the U.S. Treasury, he decided that the IMF should lend an additional $8 billion to Argentina, of which $3 billion would be used in ways unspecified to catalyze a "voluntary" debt restructuring.

The main mistakes, however, were those made by Argentina, and the first one was made a full decade before the onset of the crisis. At the start of the 1990s, Argentina faced rapidly rising inflation, and Domingo Cavallo, the new Economy Minister, adopted a drastic response. On April 1, 1991, a new peso was introduced and was pegged at par with the U.S. dollar. Furthermore, the country's central bank was constrained to...