Part of the reason for that belief was that the authorities would understand that the macroeconomic effects of failing to maintain the exchange rate peg – one on which the entire financial structure of the economy was dependent – would be disastrous. Unfortunately, that theory did not withstand the unfolding of the Argentine crisis.
It was true that the collapse of a long-established and relatively long believed-in currency peg was extremely expensive for Argentina. But it was not clear that there was a better way out of the deep crisis in which Argentina found itself at the end of 2001.