Fiscal Dominance and Sovereign Default: The Structural Causes of Argentina's Convertibility Collapse, 1991–2001

This thesis argues that the collapse of Argentina's Convertibility Plan in 2001 was the product of structural fiscal dominance rather than exchange rate rigidity. While the conventional interpretation attributes the crisis to the institutional constraints of the Currency Board and the accumulation of external shocks, the present work demonstrates that the fixed parity functioned as a displacement mechanism: by foreclosing the inflation tax, it transferred the consequences of chronic fiscal imbalance from the monetary channel to the sovereign-debt market, generating the accumulation dynamic whose terminal phase the 2001 default represented. The argument is developed across three chapters. Chapter 1 provides a historical reconstruction of Argentina's macroeconomic cycles from 1983 to 2002, tracing the evolution from the heterodox stabilization attempts and hyperinflation of the 1980s to the orthodox reforms of the 1990s and the ultimate default. Chapter 2 dissects the anatomy of the Convertibility regime, analyzing its institutional constraints and structural transformations — the Currency Board's mechanics, the temporary fiscal relief provided by mass privatizations, the transition costs of the 1993 pension reform, and the structural dependence on external financing. Chapter 3 presents the core analytical argument: drawing on the Sargent–Wallace framework of fiscal dominance and the Reinhart–Rogoff–Savastano concept of debt intolerance, it reconstructs how chronic primary deficits — stripped of the monetary financing instrument by the statutory architecture of the Convertibility Law — forced an unsustainable accumulation of external debt, how the resulting sovereign risk premium compressed fiscal space until no adjustment path remained viable, and how the self-reinforcing dynamic between sovereign insolvency and banking fragility precipitated the institutional collapse of December 2001. The study concludes that the 2001 crisis was a classic instance of fiscal dominance: a credible nominal anchor alone, absent the primary surplus it presupposed, could not indefinitely defer the sovereign-debt crisis it had displaced from the monetary channel.