During the 1997-2001 period, the Economist Intelligent Unit’s business environment rankings listed Argentina as one of the highest ranked emerging markets for investors. This rating was based on the sound financial and economic progress in Argentina, including strong growth, structural reforms, and an extremely liberal foreign investment system of rules. As Stephen Finn, advisor for Ernst & Young, LLP, noted: “For years, when global investors considered investment opportunities in Latin America, they often began with Argentina, a country noted for its progressive government, strong economy, privatization initiatives and open markets” (1). During the next ranking period (2002-2006), it is particularly unlikely that Argentina will seem very attractive as an investment source as its financial and economic woes continue to worsen causing investor and capital flight.
Perhaps the biggest reason for the loss of attraction is the abandonment of the Convertibility Law. Argentina is one nation in Latin America whose dollarisation was responsible for economic growth and prosperity. For years Argentina chose to tie their current to the U.S. dollar. This was advantageous for years, but has now become a critical issues for Argentina in the current financial and economic crisis. The fundamental flaw with tying their currency to the U.S. dollar is that Brazil, not the United States, is Argentina’s primary trading partner. When Brazil’s currency devalued dramatically against the U.S. dollar, a critical trading relationship for the Argentinean economy was abruptly disrupted. Nevertheless, experts continue to recommend the dollarisation of the Argentine currency: “The best way for Argentina to address the interest rate premium resulting from currency risk would be to adopt the U.S. dollar as its own currency...leading to lower interest rates on the country’s debt” (Eiras and Schaefer 1). This might make it more realistic that...