Reform after the Storm: Implementing Inflation Targeting in Argentina

The financial crisis that erupted in Argentina in 2001 left the economy with no nominal anchor. In 2003, the governor of the Central Bank announced that the country would adopt an Inflation Targeting (IT) strategy in late 2004. Given the recent embracement by the academic literature of the analysis of the suitability of IT regimes for emerging markets, the purpose of this paper is to explore the main characteristics that would determine the success or failure of such a strategy in Argentina. Our study will begin by reviewing the rationale and the design mechanisms of IT. Secondly, we will explore the characteristics pointed by the literature as the principal requirements for a successful implementation of the IT mechanism. We will draw conclusions by applying these requirements to the current Argentine economic and institutional framework in order to determine whether the system could be maintained in the longterm. Brief considerations about MERCOSUR will be included in the conclusions. La crisis financiera argentina que estallara en el ano 2001, dejo a la economia sin un ancla de referencia nominal. En el 2003, el presidente del Banco Central anuncio que el pais adoptaria una Estrategia de Objetivos de Inflacion (EOI) a fines del 2004. Partiendo del creciente debate academico en torno a la adecuacion de EOI a los mercados emergentes, en este articulo se exploran aquellos aspectos de dichos regimenes que podrian determinar su fracaso o exito en el caso argentino. El estudio comienza con una revision de la racionalidad y diseno de la EOI. En segundo lugar, se analizan los principales requerimientos establecidos por la literatura para el exito de una EOI. Finalmente, se extraen conclusiones en el caso de Argentina mediante la aplicacion de esos requirimientos al contexto economico e institucional del pais. El objetivo es determinar si en este caso especifico es posible mantener dicha estrategia en el largo plazo. Algunas consideraciones en torno al MERCOSUR, son incluidas en las conclusiones.