Why Argentine orthodoxy has worked no better than Turkish iconoclasm

WHEN an emerging market loses favour with its creditors, how should its government respond? The policy prescriptions do not typically include intimidating the central bank, railing against the “interest-rate lobby”, falling out with allies, eschewing the IMF’s help, pouring scorn on the dollar or appointing the president’s son-in-law as finance minister. Turkey has done all of these things, and its currency has duly lost 40% of its value this year.

Argentina, by contrast, has stuck much closer to convention. Its finance minister has two economics-related degrees. Its central bank has raised interest rates through the roof (lifting them to 60% on August 30th), and its government has secured prompt and generous assistance from the IMF, which agreed to a $50bn loan in June, the largest in its history. And yet Argentina’s currency has lost over 50% of its value this year (see chart 1).

Why has Argentine orthodoxy yielded such poor results? The question is growing more urgent. America...



via The Economist: Finance and economics Business Feeds

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