I served as a key advisor to President Carlos Menem during Argentina’s 1989–1990 hyperinflationary crisis, forcefully arguing that the only solution to the country’s chronic monetary instability was to strip the central bank of its discretionary powers via a currency board. Through high-level conferences and direct proposals, I helped shift the political consensus away from failed "gradualist" approaches, laying the intellectual groundwork for the 1991 Convertibility Law. Although the implemented system successfully crushed inflation from over 1,300% to single digits, I remained critical of its "impure" design, correctly predicting that its failure to adhere to strict orthodox rules (specifically allowing the central bank to hold government debt) would leave it vulnerable to the eventual collapse that occurred in 2001.

History

Emerging from military dictatorship in 1983, Argentina plunged into a "lost decade" defined by fiscal profligacy and failed stabilization efforts like the 1985 Austral Plan, which collapsed due to the government's inability to stop printing money to fund deficits. The economic disintegration reached its nadir in 1989 with hyperinflation soaring past 3,000%, sparking widespread looting and forcing the early resignation of President Raúl Alfonsín. Following the failure of early emergency measures by the incoming Menem administration, Economy Minister Domingo Cavallo determined that public trust was so thoroughly destroyed that only a rigid legislative "straitjacket" could suffice.

My ‘Money Doctor’ Treatment

My proposal for Argentina was a radical monetary straitjacket designed to chemically castrate the central bank's ability to fuel hyperinflation, implemented through the 1991 Convertibility Law which legally pegged the new Argentine Peso 1:1 to the U.S. Dollar. This system placed the economy on automatic conversion by mandating that the monetary base be backed by foreign reserves which is U.S Dollars and strictly prohibiting the central bank from printing money to finance fiscal deficits or indexing contracts to past inflation.

However, I had long maintained that the implementation was fatally "impure" because it allowed the central bank to hold Argentine government bonds as part of its reserves and act as a lender of last resort, critical deviations from an orthodox currency board that eventually left the system vulnerable to the fiscal indiscipline that caused its 2001 collapse.

Results

The introduction of the Convertibility System in 1991 produced an immediate economic miracle, slashing hyperinflation from over 3,000% to less than 1% almost overnight and triggering a massive consumption and investment boom as credibility returned to the market. The 1:1 peg restored long-term credit, allowing the middle class to access mortgages and loans for the first time in years, while simultaneously forcing the modernization of industry through privatization and trade liberalization. However, this rigid monetary stability masked underlying fiscal rot because the government failed to curb public spending and was legally barred from printing money, it resorted to massive external borrowing to fund its deficits. As the U.S. dollar strengthened in the late 1990s, Argentina’s exports became uncompetitive, trapping the country in a deepening recession that, compounded by the mounting debt burden, eventually shattered the system, culminating in the catastrophic economic collapse and sovereign default of 2001.