Episode Details

In April 1991, Argentina fixed its exchange rate to the dollar by act of Congress. It was illegal to issue a peso without a dollar in reserve to back it. For ten years, it worked. Inflation collapsed from three thousand percent monthly to under two percent annually.

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The IMF called it the model for emerging market stabilization. Then the model's success became its failure. Because the convertibility worked, people believed it. Because they believed it, they borrowed in dollars. Because they borrowed in dollars, the exit became impossible without destroying the balance sheet of an entire economy. This episode is not about the 2001 default — that's EP03. This is the anatomy of the Convertibility Plan itself: what it was designed to solve, what it structurally could not solve, and why the three requirements that had to hold simultaneously — fiscal discipline, external competitiveness, and banking system solvency — all failed within eighteen months of each other after Brazil devalued in 1999. The central argument: the exit trap was not a design flaw. It was the design working exactly as intended, for long enough that unwinding it required absorbing losses larger than the sovereign's fiscal capacity. The longer a rigid monetary system operates successfully, the more catastrophic the adjustment when it breaks.