97 rights in Argentina.<sup>89</sup> Thus, the Heritage Foundation’s 2003 Index of Economic Freedom ranks Argentina 68<sup>th</sup> out of 161 countries with a score of 2.95 on a scale of 1 (best) to 5 (worst), but the “property rights” score among the several considered in the ranking gives Argentina a grade of “4”, a low level shared with such countries as Algeria, Mozambique, and Indonesia (O’Driscoll et al, 2003). This is a vertiginous drop from Argentina’s ranking as recently as 2000, when it stood at 17<sup>th</sup> overall and scored a “2” on property rights, and it is a graphic indicator that Argentina will need to rebuild confidence both abroad and at home in the rule of law in economic matters.

# **_VI.  Conclusion_**

Argentina has begun to emerge from the worst economic depression in its history. So far it has successfully avoided hyperinflation, the specter that for more than a decade haunted any discussion of ending the currency board arrangement. The central question now is whether the country can implement the economic reforms that are needed to achieve sustained growth in the future.

This study began with a recapitulation of the origins of Argentina’s 3D collapse (default, devaluation, and depression). Economists will debate far into the future the relative importance of the various causes of the crisis. I conclude that inadequate fiscal performance, overvaluation under the currency board, and a series of external shocks were all important forces that combined to make the economy vulnerable. I emphasize, however, that political weaknesses provided the spark that ignited this inflamatory combination. While all would agree that the protracted recession had made the political environment substantially worse, it is not plausible to treat the political disarray as strictly endogenous and the economics as the sole determinant of the outcome. The contrast with Brazil’s recent resurgence from a financial markets crisis on the back of a more functional political environment provides support to this interpretation.

The dynamics of the “political shock-multiple equilibrium” model not only help explain the collapse, but are also of prime importance to understanding the requirements for a more successful economy in the future. A cooperative political environment will be essential if Argentina is to carry out the economic reforms needed. The fiscal structure needs to be strengthened substantially. Tax collection needs to be enforced. The perverse structure of provincial revenue sharing needs to be reformed. Distortionary taxes (credit and debit tax, export tax) need to be phased out. Bloated bureaucracies, including especially at the provincial level, need to be slimmed down. These reforms will only be possible if the political classes close ranks to enable Argentina to return toward the realization of its strong economic potential as one of the most well-endowed emerging market economies in terms of human and physical resources.

Reestablishing reliable and equitable rules of the game will also be essential. Argentine negotiators will need to strike a debt restructuring deal with international

> 89 Unequal treatment benefitting key political allies can be added to the list, most notably the “cultural heritage” carve-out in the bankruptcy legislation preventing foreign ownership of news media and thereby blocking collection of foreign debt owed by some major media interests.