Argentina and the Fund

Mussa served as chief economist of the International Monetary Fund from 1991 to 2001 and wrote this short assessment shortly after leaving, examining the Fund's conduct toward Argentina and his own institution's failures.

His diagnosis places the primary blame on Argentine fiscal policy. He argues that the convertibility regime could have been sustained if the government had run the fiscal surpluses that a fixed exchange rate requires, that instead public debt rose substantially during a period of growth when it should have fallen, that the provinces spent without effective federal constraint, and that when the external environment turned in 1998 the country had no fiscal room.

His criticism of the Fund is that it failed to press hard enough on fiscal policy during the good years, when its leverage was greatest and the adjustment would have been least painful, and that it then lent too much in 2001 when the situation was already unsalvageable. He is specific that the August 2001 augmentation of the programme was a mistake, that it was extended for political reasons, that it financed capital flight, and that it increased the eventual losses for everyone including the Fund itself.

Mussa also addresses the exit problem: he argues that there was no good way to leave convertibility, that every alternative involved severe costs, and that the delay made all of them worse.

The book is short, direct and unusual in that a senior official criticises his own institution in specific terms. Its framing is fiscal, and critics including Stiglitz and others have argued that the convertibility regime itself was the primary error and that the Fund supported it far too long, which shifts the responsibility differently. Blustein's account, also in this reference, gives more weight to the creditors and the market.