elthes could nouht ot money equent azilian bank deposits in the country had been
ID: 395102 • Letter: E
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elthes could nouht ot money equent azilian bank deposits in the country had been converted by urther their owners into dollars and moved to overseas razil's accounts. Banks were concerned about how long indle. dollar reserves would last in the country at the ing a rate of one peso to one dollar. Rumors of a possible plum- devaluation of the peso were rife by early 2002. But plum- devaluation remained problematic. Many debts and withdraw from banks or transfer abroad. In the previous year, 20 percent of contracts in Argentina were denominated in dollars A devaluation of the peso would increase the cost com- ntina in pesos of meeting those dollar obligations. This the situation in turn could cause a banking crisis. my Discussion Questions over 1. What foreign exchange regime should Argentina tina adopt: dollarization, a freely floating peso, the status quo, or another? Why? 1S- Re- 2. Which foreign exchange regime would you prefer to see in Argentina if you were a U.S. exporter of heavy machinery? A European exporter of cosmetics? A Brazilian exporter of automobiles? Why? al- 3. What problems related to regional integration agree- ments are illustrated in this case? rSources: David Wessel and Craig Torres, "Passing the Buck," Wall ve. Street Journal, January 18, 1999, p. A1, Craig Torres and Matt Mof- fet, "Neighbor-Bashing," Wall Street Journal, May 2, 2000, p. A1; inUS. Department of State, FY 2000 Country Commercial Guides. ng Argentina and Brazil, and Michelle Wallin, 'Analysts Wam That a Free-Floating Peso Is Only Part of the Fix That Argentina Needs," ver 0l- Wall Street Jourmal, February 8, 2002, p. A16.Explanation / Answer
Definitely adoption of dollarization would be the most appropriate way for Argentina as it would provide better value for their own currency. Deadly Hai exchange rates would enable the country to be more productive as well as to provide better support to the overall organisational structure in different industries. As Argentina has a great capability of manufacturing goods, application of dollarization would attract United States and similar exporters.
Us exporter of heavy machinery would be the most appropriate regime that should enter Argentina as United States has great availability of heavy machinery and prices are relatively low. If Argentina adopts the Rising Sun then it would be much beneficial for the country as it could increase the chances of having better quality machinery improving the overall productivity rate of the country resulting in better profit generation from different markets. Heavy machinery utilisation would also enable Argentina to create more effective manufacturing facilities and reduce the cost of operations as Outsourcing heavy machinery from United States would definitely be cheaper than producing there on heavy machinery in argentina.
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