That crisis now seems to have passed. The currency board has proven enormously successful at eliminating inflation and inflationary expectations, but it also restricts ability to adjust quickly to economic shocks. The dollar's overall appreciation in recent years and the devaluation of Brazil's real in January 1999 adversely affected Argentina's competitive position, particularly in Latin American markets. To regain its edge without depreciating the peso, it has had to lower domestic goods prices. Since early 1999, consumer prices have been falling, but Argentina's economy, particularly its labor markets, is not very flexible.
Prices adjust slowly and as they do, output and employment typically fall.
Limiting exchange-rate flexibility seems to require increasing domestic price flexibility.