International Finance Discussion Papers (IFDP)
August 1991
Argentina's Experience with Parallel Exchange Markets: 1981-1990
Abstract:
This paper surveys the development and operation of the parallel exchange market in Argentina during the 1980s, and evaluates its impact upon macroeconomic performance and policy. The historical evolution of Argentina's exchange market policies is reviewed in order to understand the government's motives for imposing exchange controls. The parallel exchange market engendered by these controls is then analyzed, and econometric methods are used to evaluate the behavior of the parallel exchange rate and its impact upon the balance of payments.
The main conclusion of the paper is that exchange controls were never effective enough in Argentina to allow the authorities to set the commercial exchange rate independently of the parallel market rate. Attempts to set the commercial exchange rate at too appreciated a level consistently prompted widespread evasion of exchange controls that undermined the government's international reserve position. Econometric evidence supports the hypothesis that important components of the balance of payments were negatively correlated with the parallel market premium during the 1980s. The evidence also confirms that the parallel market premium was influential in the determination of the commercial exchange rate.
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