Devaluation On The Argentine Economy

Simply speaking, if the rate is high, firms will find their returns on investments increase domestically. That, in turn, creates a higher demand for the U.S. currency. Effectively, the exchange rate also increases. It pushes the dollar value higher compared to other currencies. So even if there has been nothing changed in the input of a firm, the output now all of a sudden becomes more expensive in the countries where it exports its products to due to the new exchange rate. Export is reduced for that reason. As of for import, other countries would be very happy to see the change in exchange rate. Their products now are cheaper making import value goes up. As we now, the net exports equals export minus import. Export goes down and imports go up means net export goes

On April 1, 1991, Argentina’s Congress, with Domingo Cavallo as Minister of Economy, enacted the Convertibility Law (or Ley de Convertibilidad) legally adopting the currency board (Hornbeck, 2002). This legislation essentially pegged the Argentinean peso to the U.S. dollar. The government guaranteed the convertibility of the peso to U.S. dollar at a one-to-one exchange rate, limiting the printing of pesos to only those necessary to purchase dollars in the foreign exchange market. Thus, the central bank was required by law to hold foreign reserves to cover its peso liabilities (Hanke and Schuler, 2002). With this fixed exchange rate, the Argentinean government was hoping to preserve the value of their currency and stabilize inflation. The peg was initially successful, as it cured hyperinflation that occurred at the end of the 1980s and provided price stability needed for economic growth in the early 1990s. However, by the late 1990s,

Before we look at these forces, we should sketch out how exchange rate movements affect a nation 's trading relationships with other nations. A higher currency makes a country 's exports more expensive and imports cheaper in foreign markets; a lower currency makes a country 's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country 's balance of trade, while a lower exchange rate would increase it.

Exchange rates play a pivotal role in the relationships between individual economies and the global economy. Almost all financial flows are processed through the exchange rate, as a result the movements and fluctuations of the exchange have a significant impact on international competitiveness, trade flows, investment decisions and many other factors within the economy. Due to the increasing globalisation of the world economy, trade and financial flows are becoming more accessible

The strongest argument in favor of a floating exchange rate regime is that it retains the flexibility to use monetary policy to focus on domestic considerations. In contrast, a hard exchange rate peg leaves very narrow scope for domestic monetary policy, because

Such a process can be very time consuming and imprecise, without, of course, having a market currency price to begin with. The exchange-rate system is an important topic in international economic policy. Policymakers and journalists often seem to treat the choice of exchange-rate system as one of the most important economic policy choices that a national government makes, on a par with free international trade. Under most circumstances and for most countries, a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate.

In 1502 European sailors arrived ashore the Argentinean land during the Amerigo Vespucci voyage in 1502. A Spanish navigator named Juan Diaz de Solias visited Argentina during the year of 1516. The Spanish people created a permanent colony on the site of Buenos Aires in 1580, which was built overland and greatly resembled those built in Peru. From this established colony the regions of Rio de la Plata and Buenos Aires become the center of trade in Central America and throughout Europe. In the year of 1816 on July 9th the region of Buenos Aires would declare for their independence from Spanish opposition. After their victory over the Spanish, two groups would embark in lengthy conflicts between one another on who would/should control the region of Buenos Aires, and the two groups being the centralists and the federalists. These two groups thus combine to create the nation known to this day as Argentina finally establishing in the late 19th century finally agreeing on views. Foreigners investing into Argentina’s trade would add to a contribution of an economic revolution all throughout Argentina leading to the production of railroads and mass amounts of trade ports spreading all throughout the land of Argentina with the British being their primary and significant investor’s. Ever since these momentous events have occurred Argentina has grown to be one of the world’s top 10 richest and prosperous countries based off of their fast development of their agriculture and

The situation that arose in Mexico in 1995 after the devaluation of the peso by 15% sent the currency into a downward spiral over the succeeding months in what became known as the Mexican Peso Crisis. A currency crisis is defined by a sharp and unexpected decrease in the value of the currency. This was precisely the case in Mexico, losing over 60% of its value in less than four months. The drastic nature of the crisis came as a surprise to many because of the unprecedented success of the Mexican economy in the years before. Mexico had curbed its inflation, posted very impressive growth rates, and was reaping the global benefits of the imminent North American Free Trade Agreement. It certainly looked as if this historically unstable

Argentina’s turbulent history of economic crisis are often attributable to government mismanagement and fluctuating commodities prices, which have resulted in the millions to live below the poverty line. Repeated recessions of the 1970s and 1980s, the hyperinflation of 1989-90, the economic crisis of 2001. Argentina is a long way from the turmoil of 2001, but today’s mix of rising prices, wage pressures and the mistrust of the peso have prompted Argentineans to become overrun by a sense of nostalgia.1

The exchange rate of a country measures the external value of the currency. To a country such as Zambia the market for foreign exchange is very important. Its own currency, the kwacha is not a hard currency and thus not universally accepted in payment of debt. Zambia relies on generating foreign currency from selling exports to enable it to finance imports. The macroeconomic situation such as the balance of payments position, employment and inflation are all influenced by a country's exchange rate. Hence it becomes a key economic policy inconsistent.

In December 2015, Argentina’s newly elected “Cambiemos” party (Lets Change) announced it planned on lifting all restrictions on capital flows, allowing practically unlimited access to foreign currency in a process intended to push the peso’s value to float towards its true market value. The move to liberalize capital flows was a desperate attempt to increase exports and spur economic growth in an economy that has been battling low foreign reserves and double-digit inflation for the past several years. The free-market candidate, Mauricio Macri, was determined to restore investor confidence in Argentina, utterly destroyed by its 2002 record default, a lack of transparency in its economic institutions, and heavy state intervention. With the backing of big business, both domestic and foreign, Macri was able to mobilize a dissatisfied middle-class tired of the leftist protectionism of the past decade. The economic reforms came at a time of extreme political polarization and civil unrest in Argentina. The Peronist candidate, Daniel Scioli, lost by a very slim margin, leaving the opposition eager to utilize any economic setbacks as political ammunition. For many Argentines, Macri’s neoliberal plans sound awfully reminiscent of the disastrous policies implemented by Carlos Menem in the 1990s. Given the population’s low tolerance for austerity measures and a ferocious opposition watching every move, Macri’s must walk a tight line if he is to successfully tackle Argentina’s economic

The exchange rates is a complicated concept that derives a relationship between the imports and exports. The exchange rate has also effect on the trade surplus and deficit. A weaker currency will make imports more expensive than the exports and a strong currency will make imports cheaper.

Prior to becoming a democratic country, Argentina was exposed to a military dictatorship. Under this regime the Economy Minister was Jose Alfredo Martinez de Hoz whose neoliberal economic platform sided along to anti-labor, monetarist policies and financial liberalization. As a result of this regime, Argentina accumulated a $45 billion foreign debt. As a result interest rates exceeded trade surpluses, unemployment increased and there were high inflation rates. In 1985 a democracy was reestablished once President Raul Alfonsin was elected. Alfonsin’s government intended to stabilize the economy by establishing the austral, a new currency. However, this was unsuccessful because the government couldn’t continue to fund its debts. The cost of utility increased significantly as real wages fell by almost half. As a result uncertainty increased across the country, inflation increased from 200% a year in 1988 to 5,000% in 1989 (Brooke).

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.

It was observed during the recent emerging market crises that as soon as an inflexible exchange rate and other financial sector weaknesses became apparent in an economy, institutional investors and currency speculators were attracted toward it, making a currency crisis imminent (Das 1993).  Exchange rates create a risk to a business like Unilever. A bad exchange rate creates the need for Unilever to increase the prices; a positive exchange rate gives a firm the chance to earn more income.  Unilever always monitors the financial status of the country they operate in, it always checks for any changes in the exchange rate and other economic indicators. The company’s local strategy is based from the exchange rate.  Since exchange rates are unpredictable, Unilever makes sure that it has contingency plans to ensure that any abrupt change in the exchange rates would not cost