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December 10, 2008

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You seem to be describing a problem with three levels.

-A risk of inflation if more fiscal stimulus is needed.

Does the Argentine central bank have reasonable control of the money supply? What would it need to get it?

-A (well founded) fear of inflation.

What about a high-level reorganization of monetary policymaking and bringing in some German central bankers as consultants? It would be mostly PR, but could it give people who want to believe it a reason to believe that inflation can be whipped?

-A lack of international credit.

What about hybrid public/private bonds, where, say, some municipality or private company sells the bond but the government guarantees something like return of principal? On the one hand, the risk would be somewhat lower than the company could get on its own. On the other there would be real assets that the bondholders could go after in case of default.

Is there a possible "cosigner" that the Argentine government wouldn't dare to stiff who could make at least a partial guarantee on some bonds? Specifically, could Argentina persuade the Brazilians to let them sell debt denominated in reals and partially guaranteed by the Brazilian government?

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