Do Economic Crises Contribute to Economic Reform? Argentina and Venezuela in the 1990s

Abstract

The argument is often made by scholars and practitioners that economic are a blessing in disguise, since they contribute to adoption and successful implementation of harsh measures of economic stability and structural adjustment (ESSA). Allan Drazen and Vittorio Grilli, for instance, argue that crises and emergencies may be welfare-improving and hence desirable, because they make citizens and leaders more eager to embrace adjustment measures.' This argument has become almost indisputable. A recent review of literature states: [t]hat economic seem either to facilitate or outright cause economic reforms is part of new conventional wisdom on reform.2 In fact, so conventional is this view that some international policy advisers have actually been known to recommend to policy-makers that they wait until things get really harrowing before launching ESSA reforms. This article argues that hypothesis that economic facilitate economic reforms is often incorrect or insufficient. Crises do play a role in politics in general and in processes of economic reform in particular. But this role is hard to predict and seldom beneficial. In addition, literature offers no consistent guidelines as to what constitutes the crisis. Moreover, focusing on discerning true parameters of real crisis entails risk of ignoring