Interest Group Pressures and Currency Crises: Argentina in Comparative Perspective

This article develops and tests a political-economy explanation for the most common type of financial crisis: a currency crisis. I argue that currency crises often reflect pressures from powerful interest groups to adopt unsustainable financial policies that generate short-term booms followed by painful currency crises. To test the theory, this article uses a multi-method research design that combines cross-national statistical analyses with a case study of Argentina that draws on extensive primary sources. The quantitative analyses demonstrate that currency crises are more likely in countries with organized labor movements and large industrial sectors, and that imprudent financial policies are an important channel through which interest groups contribute to currency crises. The case study shows that Argentine policymakers adopted crisis-prone policies in response to pressures from the country's powerful industrialists and labor unions. These findings suggest that interest group pressures help explain why currency crises are so common.