# **I. Motivation and definitions**

Since the early 1990s, the Argentine economy emerged from hyperinflation and stagnation to experience multiple growth accelerations followed by either stagnation or recession, including one severe crisis in 2001-2002. Standard measures of macroeconomic volatility establish Argentina as a clear outlier.

The last quarter century has also been a period of dramatic shifts in economic policymaking in Argentina, at both the macro and micro levels. Examples include the following: exchange rates--from a hard peg (currency board) to managed float to dual exchange rate regime; state-owned enterprises--from a wave of privatization of to a wave of nationalizations; and trade-from a gradual opening (within the context of Mercosur) to unilateral import controls. This is not to pass value judgments on the policies themselves, but to make note that they represent strong shifts in the direction of economic policy. Such has been the volatility of policies and outcomes over this period that two Argentine authors ask the question: “Stop and go” or “Go and Fail”? (Albrieu and Fanelli, 2008). Another Argentine economist dubbed the phrase the “Macroeconomics of Broken Promises” (Heymann, 2007).

This paper explores the hypothesis that the credibility of economic policy making in Argentina (or lack thereof) has impacted the volatility of economic performance over the period 1989-2015. To establish the link, a historical review of economic policy making and economic outcomes over the last quarter century is presented, informed by a survey of the literature on credibility and the political economy of reforms. A more fundamental question is why policy shifts are so frequent, and this necessarily relates to the political institutions underlying policy making. The survey, combined with international experience, is then used to consider policy options that could help reestablish credibility during the new administration.

Webster defines “credible,” as “offering reasonable grounds for being believed.” For economic policy making, Calvo (1989) defined (the lack of) credibility as the “nonconformity of expectations with announcements.” For the purpose of this paper, one can use the following definitions for the credibility of economic institutions:

- _(a) Macroeconomic_ credibility.  (i) _Monetary Policy_ .  Given its institutional role, one can focus on the central bank, and adopt the following definition:  “Central Bank credibility is defined as a commitment to follow well-articulated and transparent rules and policy goals.”<sup>1</sup> (Bordo and Syklos, 2015). (ii) _Fiscal Policy_ credibility can be defined in similar terms; however, quantitative fixed rules (“fiscal rules” and/or “fiscal responsibility laws”) have been adopted more generally in practice than, say, the “Taylor Rule” for monetary policy.

- _(b) Microeconomic_ credibility.   Commitment to a “level playing field” for businesses and workers; i.e., non-discriminatory regulations (including the trade regime) and taxation.  The

> 1 The authors then develop an empirical measure of credibility based on deviations in inflation from inflation objectives, whether the latter are explicit or implicit.

2