WILL ARGENTINA DEVALUE ITS PESO?
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SUGGESTED ANSWERS TO WILL ARGENTINA DEVALUE ITS PESO
1. What are the pros and cons of Argentine peso devaluation?
ANSWER. The case pretty well lays out the pros and cons of peso devaluation. Perhaps the key issue is the impact
such a devaluation would have on the slowdown in Argentine economic activity and high unemployment rate. To
the extent that devaluation would boost economic growth, the likelihood of such a move is increased. Opponents of
A peso devaluation, on the other hand, could improve the competitiveness of Argentine exports and import-
competing products as well as reduce real interest rates (once the threat of devaluation was gone). A decline in real
2. Given these pros and cons, what is the likelihood that Argentina will devalue its peso?
WILL ARGENTINA DEVALUE ITS PESO?
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3. What are the pros and cons of dollarization?
ANSWER. Dollarization would end the endless speculation as to whether Argentina will end convertibility. This
should reduce the country’s exposure to the periodic exchange rate crises and capital outflows that developing
4. What are the likely consequences of peso devaluation for the Mega project?
ANSWER. It depends on the consequences of peso devaluation and the extent of the devaluation. If the devaluation
leads to heightened economic activity, it could be good for the project insofar as customers would have higher
5. What effects would dollarization likely have on the Mega project?
6. What alternatives are available to stimulate Argentina’s economic growth independent of exchange rate policy?
ANSWER. The case points to some of these alternatives in the footnote, which states that “many analysts attribute the
high unemployment rate to Argentina’s rigid labor laws rather than to peso overvaluation. Other analysts have
WILL ARGENTINA DEVALUE ITS PESO?
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