Should a new economics minister put his rescue plan at risk by fighting for a currency board?
Should a new economics minister put his rescue plan at risk by fighting for a currency board?
It is 1991, and Argentina's new economics minister, Domingo Cavallo, has a plan to save his country from stag-hyperinflation - a punishing combination of recession and inflation. Argentina has suffered from high inflation for the last 15 years, and recently endured a 12-month period during which actual inflation topped 20,000. Although Cavallo feels confident that his plan could reduce inflation, one piece of the rescue package - the creation of a currency board - might not make it through the legislature. Should Cavallo fight for the currency board, and risk losing support for his entire plan? Could his plan work without a currency board? This case asks students to consider the factors that lead to this high rate of inflation and to speculate on the plan's chances for success.
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