The Influence of Interest Groups on Government The Case of the 2001 Argentine Crisis

Interest groups' influence on government affects economic policy making and has an impact on economic crises. Under Argentina's convertibility exchange-rate regime until its collapse in 2001, tradable-goods entrepreneurs' preferences depended on the degree to which the government offered them trade-offs either to offset the loss of competitiveness stemming from the currency peg or to exempt them from the costs of devaluation. For the nontradable sector and investors the costs of maintaining the peg to the dollar were always less than those entailed in abandoning the regime. While the fiscal and external inconsistencies of convertibility reduced the preference of the International Monetary Fund for maintaining convertibility, the cost of changing it induced the Fund to continue financing the Argentine government. Moreover, the influence exerted on the IMF by the governments of countries whose businesses had been affected by the distribution of the cost of abandoning the convertibility discouraged financial collaboration by the foreign assistance organizations during the collapse.