The Convertibility plan was a plan by the Argentine Currency Board that pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. The peso was only pegged to the dollar until 2002.
Background
For most of the period between 1975 and 1990, Argentina experienced hyperinflation (averaging 325% a year), poor or negative GDP growth, a severe lack of confidence in the national government and the Central Bank, and low levels of capital investment. After eight currency crises since the early 1970s, inflation peaked in 1989, reaching 5,000% that year. GDP was 10% lower than in 1980 and per capita GDP had fallen by over 20%. Fixed investment fell by over half and, by 1989, could not cover yearly depreciation - particularly in the industrial sector. Social indicators deteriorated seriously: real wages collapsed to about half of their 1974 peak and income poverty rates increased from 27% in 1980 to 47% in 1989.
To a large extent, the main reason behind this long period of hyperinflation was unsustainable growth of the money supply to finance the large fiscal deficits maintained by successive governments. Driven by rising tax evasion and losses among state enterprises, the total public fiscal deficit reached 10% of GDP in 1983. Austerity measures pursued by President Raúl Alfonsín trimmed this 4% in 1985, though the 1989 crisis pushed the shortfall to 7.6% (which could only be financed by suspending debt interest payments).