International Policy

An Argentine Model For An Indonesian Currency Board

Some Argentine economists recommend that Indonesia look to their country's success in controlling currency fluctuations following passage of their 1991 Convertibility Law.

  • In Argentina, both the country's peso and the U.S. dollar circulate and are widely used.

  • Because the Argentine peso is convertible to U.S. dollars at a fixed rate, Argentine monetary policy is effectively controlled by the U.S. Federal Reserve.

  • Argentine monetary authorities have proven they are willing to permit the complete dollarization of the economy rather than abandon the commitment to convertibility or promote extremely high interest rates.

Experts say the Convertibility Law has made economic restructuring politically feasible. The economy has been opened, legal monopolies eliminated and the financial system reformed.

From 1990 to 1997, inflation in Argentina fell from 1,000 percent to 1 percent. Gross domestic product grew more than 50 percent -- or at an average annual rate of more than 6 percent.

Source: Domingo F. Cavallo (former Argentine Minister), "How to Make a Currency Board Work in Indonesia," Wall Street Journal, March 6, 1998.

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