Argentine​ ​Economic​ ​Crisis​ ​1998-2002 Abstract During​ ​the​ ​east​ ​Asian​ ​crisis​ ​of​ ​1997,​ ​Argentina​ ​was​ ​being​ ​referred​ ​to​ ​as​ ​a​ ​model​ ​state because​ ​of​ ​its​ ​fixed​ ​exchange​ ​rate​ ​regime.​ ​However,​ ​by​ ​2001,​ ​due​ ​to​ ​several macroeconomic​ ​reasons​ ​the​ ​economy​ ​had​ ​collapsed.​ ​It​ ​is​ ​now​ ​clear​ ​that​ ​Argentina​ ​will reverse​ ​at​ ​least​ ​some​ ​of​ ​the​ ​economic​ ​reforms​ ​introduced​ ​by​ ​president​ ​Carlos​ ​Mennen in​ ​the​ ​early​ ​1990s​ ​to​ ​survive​ ​the​ ​crisis​ ​it​ ​is​ ​currently​ ​experiencing.​ ​That​ ​small​ ​and​ ​open economies​ ​are​ ​far​ ​more​ ​susceptible​ ​to​ ​large​ ​external​ ​shocks,​ ​such​ ​as​ ​changes​ ​in foreign​ ​interest​ ​rates,​ ​terms​ ​of​ ​trade,​ ​regional​ ​contagion​ ​effects,​ ​etc,​ ​is​ ​among​ ​the​ ​many lessons​ ​of​ ​the​ ​Argentine​ ​crisis. Argentina​ ​:​ ​The​ ​Country Argentina​ ​is​ ​a​ ​massive​ ​South​ ​American​ ​nation​ ​with​ ​terrain​ ​encompassing​ ​Andes mountains,​ ​glacial​ ​lakes​ ​and​ ​Pampas​ ​grassland,​ ​the​ ​traditional​ ​grazing​ ​ground​ ​of​ ​its famed​ ​beef​ ​cattle.​ ​The​ ​country​ ​is​ ​famous​ ​for​ ​tango​ ​dance​ ​and​ ​music.​ ​Its​ ​big, cosmopolitan​ ​capital,​ ​Buenos​ ​Aires,​ ​is​ ​centered​ ​on​ ​the​ ​Plaza​ ​de​ ​Mayo,​ ​lined​ ​with​ ​stately 19th-century​ ​buildings​ ​including​ ​Casa​ ​Rosada,​ ​the​ ​iconic,​ ​balconied​ ​presidential​ ​palace. Argentina​ ​:​ ​The​ ​Economy The​ ​​economy​ ​of​ ​​Argentina​​ ​is​ ​an​ ​upper-middle​ ​income​ ​economy​ ​for​ ​fiscal​ ​year​ ​2016 according​ ​to​ ​World​ ​Bank​​ ​​Latin​ ​America​'s​ ​third​ ​largest,​ ​and​ ​the​ ​second​ ​largest​ ​in​ ​​South America​​ ​behind​ ​​Brazil​. The​ ​country​ ​benefits​ ​from​ ​rich​ ​​natural​ ​resources​,​ ​a​ ​highly​ ​literate​ ​population,​ ​an export-oriented​ ​​agricultural​ ​sector​,​ ​and​ ​a​ ​diversified​ ​​industrial​ ​base​.​ ​Argentina's economic​ ​performance​ ​has​ ​historically​ ​been​ ​very​ ​uneven,​ ​in​ ​which​ ​high​ ​economic growth​ ​alternated​ ​with​ ​severe​ ​recessions,​ ​particularly​ ​during​ ​the​ ​late​ ​twentieth​ ​century, and​ ​income​ ​maldistribution​ ​and​ ​poverty​ ​increased.​ ​Early​ ​in​ ​the​ ​twentieth​ ​century Argentina​ ​had​ ​one​ ​of​ ​the​ ​highest​ ​per​ ​capita​ ​GDP​ ​levels​ ​in​ ​the​ ​world​ ​and​ ​the​ ​third​ ​largest economy​ ​in​ ​the​ ​​developing​ ​world​.​ ​Today​ ​a​ ​high-income​ ​economy,​ ​Argentina​ ​maintains a​ ​relatively​ ​high​ ​​quality​ ​of​ ​life​​ ​and​ ​​GDP​ ​per​ ​capita​. Argentina​ ​is​ ​considered​ ​an​ ​​emerging​ ​market​​ ​by​ ​the​ ​​FTSE​​ ​Global​ ​Equity​ ​Index,​ ​and​ ​is one​ ​of​ ​the​ ​​G-20​ ​major​ ​economies​. Economic​ ​History​ ​of​ ​​Argentina Argentina​​ ​possesses​ ​definite​ ​​comparative​ ​advantages​​ ​in​ ​agriculture,​ ​as​ ​the​ ​country​ ​is endowed​ ​with​ ​a​ ​vast​ ​amount​ ​of​ ​highly​ ​​fertile​​ ​land.​ ​Between​ ​1860​ ​and​ ​1930,​ .

1. Argentine Economic Crisis 1998-2002
Abstract
During the east Asian crisis of 1997, Argentina was being
referred to as a model state
because of its fixed exchange rate regime. However, by 2001,
due to several
macroeconomic reasons the economy had collapsed. It is now
clear that Argentina will
reverse at least some of the economic reforms introduced by
president Carlos Mennen
in the early 1990s to survive the crisis it is currently
experiencing. That small and open
economies are far more susceptible to large external shocks,
such as changes in
foreign interest rates, terms of trade, regional contagion effects,
etc, is among the many
lessons of the Argentine crisis.

2. Argentina : The Country
Argentina is a massive South American nation with terrain
encompassing Andes
mountains, glacial lakes and Pampas grassland, the traditional
grazing ground of its
famed beef cattle. The country is famous for tango dance and
music. Its big,
cosmopolitan capital, Buenos Aires, is centered on the Plaza de
Mayo, lined with stately
19th-century buildings including Casa Rosada, the iconic,
balconied presidential palace.
Argentina : The Economy
The economy of Argentina is an upper-middle income economy
for fiscal year 2016
according to World Bank Latin America's third largest, and the
second largest in South
America behind Brazil.
The country benefits from rich natural resources, a highly
literate population, an
export-oriented agricultural sector, and a diversified industrial
base. Argentina's
economic performance has historically been very uneven, in
which high economic
growth alternated with severe recessions, particularly during the
late twentieth century,
and income maldistribution and poverty increased. Early in the
twentieth century
Argentina had one of the highest per capita GDP levels in the
world and the third largest
economy in the developing world. Today a high-income
economy, Argentina maintains
a relatively high quality of life and GDP per capita.

3. Argentina is considered an emerging market by the FTSE
Global Equity Index, and is
one of the G-20 major economies.
Economic History of Argentina
Argentina possesses definite comparative advantages in
agriculture, as the country is
endowed with a vast amount of highly fertile land. Between
1860 and 1930, exploitation
of the rich land of the pampas strongly pushed economic
growth. During the first three
decades of the 20th century, Argentina outgrew Canada and
Australia in population,
total income, and per capita income.By 1913, Argentina was the
world's 10th wealthiest
nation per capita.
Beginning in the 1930s, however, the Argentine economy
deteriorated notably.The
single most important factor in this decline has been political
instability since 1930,
when a military junta took power, ending seven decades of
civilian constitutional
government.In macroeconomic terms, Argentina was one of the
most stable and
conservative countries until the Great Depression, after which it
turned into one of the
most unstable. Despite this, up until 1962 the Argentine GDP
per capita was higher than
https://en.wikipedia.org/wiki/Argentina
https://en.wikipedia.org/wiki/Latin_America
https://en.wikipedia.org/wiki/South_America
https://en.wikipedia.org/wiki/South_America

4. https://en.wikipedia.org/wiki/Brazil
https://en.wikipedia.org/wiki/Economy_of_Argentina#cite_note-
24
https://en.wikipedia.org/wiki/Natural_resources
https://en.wikipedia.org/wiki/Agriculture_of_Argentina
https://en.wikipedia.org/wiki/Industry
https://en.wikipedia.org/wiki/Developing_world
https://en.wikipedia.org/wiki/List_of_countries_by_Human_Dev
elopment_Index
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
_per_capita
https://en.wikipedia.org/wiki/Economy_of_Argentina#cite_note-
hdr10-26
https://en.wikipedia.org/wiki/Emerging_market
https://en.wikipedia.org/wiki/FTSE_Group
https://en.wikipedia.org/wiki/G-20_major_economies
https://en.wikipedia.org/wiki/Argentina
https://en.wikipedia.org/wiki/Argentina
https://en.wikipedia.org/wiki/Comparative_advantage
https://en.wikipedia.org/wiki/Fertility_(soil)
https://en.wikipedia.org/wiki/Pampas
https://en.wikipedia.org/wiki/Economic_history_of_Argentina#c
ite_note-eirasschaefer-4
https://en.wikipedia.org/wiki/1930_Argentine_coup_d%27%C3
%A9tat
https://en.wikipedia.org/wiki/GDP_per_capita
of Austria, Italy, Japan and of its former colonial master, Spain
.Successive governments
from the 1930s to the 1970s pursued a strategy of import
substitution to achieve
industrial self-sufficiency, but the government's encouragement
of industrial growth
diverted investment from agricultural production, which fell
dramatically

5. The era of import substitution ended in 1976, but at the same
time growing government
spending, large wage increases and inefficient production
created a chronic inflation
that rose through the 1980s. The measures enacted during the
last dictatorship also
contributed to the huge foreign debt by the late 1980s, which
became equivalent to
three-fourths of the GNP.
In the early 1990s the government reined in inflation by making
the peso equal in value
to the U.S. dollar, and privatised numerous state-run companies,
using part of the
proceeds to reduce the national debt. However, a sustained
recession at the turn of the
21st century culminated in a default, and the government again
devalued the peso. By
2005 the economy had recovered, but a judicial ruling
originating from the previous
crisis led to a new default in 2014.
Argentina : Depression, Revolt and Recovery
During most of the 1990s, Argentina outperformed most other
countries in Latin
America in terms of growth. However, in the late 1990s,
Argentina’s hard currency peg
to the US Dollar, pro-cyclical fiscal policies and extensive
foreign borrowing left the
country unable to deal with a number of economic shocks. This
eventually led to the
outbreak of a severe currency, sovereign debt and banking
crisis.

6. The Timeline
November 30th , 2001 – As a result of rising worries among
Argentines about a peso
devaluation and a deposit freeze, overnight interest rates rise
sharply. Moreover,
spreads between US Treasury bonds and Argentine government
bonds increase to
5,000 basis points. A bank run begins.
December 1st , 2001 – In order to avert an aggrevation of the
bank run, the Minister of
Economy Domingo Cavallo announces a freeze on bank
deposits. The deposit freeze,
popularly called the Corralito, proves that the existing
Convertibility Plan, which had
https://en.wikipedia.org/wiki/Austria
https://en.wikipedia.org/wiki/Italy
https://en.wikipedia.org/wiki/Japan
https://en.wikipedia.org/wiki/Spain
https://en.wikipedia.org/wiki/Import_substitution
https://en.wikipedia.org/wiki/Autarky
https://en.wikipedia.org/wiki/Economic_history_of_Argentina#c
ite_note-britarg-8
https://en.wikipedia.org/wiki/Chronic_inflation
https://en.wikipedia.org/wiki/National_Reorganization_Process
https://en.wikipedia.org/wiki/Foreign_debt
https://en.wikipedia.org/wiki/Gross_National_Product
https://en.wikipedia.org/wiki/Economic_history_of_Argentina#c

7. ite_note-britarg-8
https://en.wikipedia.org/wiki/Argentine_peso
https://en.wikipedia.org/wiki/Privatization
https://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999
%E2%80%932002)
coupled the Argentine peso to the US Dollar on a one-to-one
basis since 1991, is
untenable. The foundation of the Convertibility Plan, the
possibility of freely converting
Argentine pesos into US Dollars, has become meaningless, as
deposit holders can no
longer access their savings. This causes unrest among the
Argentine population and
people start to demonstrate; similar freezes imposed in the
1980s had deprived the
population of the means to protect their savings against high
inflation.
December 5th , 2001 – Social unrest further grows after the IMF
announces it will cut off
its support, as Argentina continuously fails to meet the
conditions tied to the rescue
program that has been in place since September 2001. This
means that Argentina loses
access to its last source of foreign capital. With a total amount
of almost USD 22bn in

8. 2000 and 2001, the IMF support for Argentina is larger than its
support for any other
country at this time. In the protests and looting that follow, 24
people lose their lives.
Both President De La Rúa and Minister of Economy Cavallo
will resign soon after these
events.
December 23rd , 2001 – President Rodriguez Saá, who has just
been elected by the
Argentine Congress, announces the default on USD 93bn of
Argentina’s sovereign
debt. Rodriguez Saá will have to resign a couple of days later,
thereby increasing
political instability even more; as much as four different
presidents will try to rule
Argentina in December 2001, none of them however manages to
remain in office.
January 1st , 2002 – The Argentine Congress chooses Eduardo
Duhalde as the new
president.
January 6 th , 2001 –The implementation of the Law of Public
Emergency and Reform

9. of the Exchange Rate Regime marks the end of the
Convertibility Plan. At first, the peso
is devalued from 1 peso per Dollar to 1.4 peso per Dollar. Later
on, the exchange rate
will become fully floating, which allows the peso to depreciate
even further.
Aftermath
The economic and social impact of the crisis is huge. While
economic growth had
already been negative in every year since 1998, the economy
contracts by 11% in
2002. In absolute terms, GDP per capita in 2002 is only slightly
higher than twenty
years earlier. Along with the fall in GDP, the unemployment
rate rises from 14.8% in
1998, to a peak of 22.5% in 2001. As a result of the
deteriorating economic situation,
the proportion of Argentines living below the (national) poverty
line rises sharply from an
already high 25.9% in 1998 to 57.5% in 2002. Partially thanks
to the strong depreciation
of the peso, the Argentine economy starts to recover in the

10. course of 2002.
When the IMF stops providing new loans in December 2001,
Argentina fully loses its
access to foreign finance. In order to regain the access to the
international financial
markets it lost in the run up to the crisis, the government needs
to restructure the debt
on which it defaulted. However, as Argentina posts large
surpluses on the fiscal and
current accounts after the default and large devaluation of the
peso, access to foreign
finance has become less urgent. Argentina takes a hardline
approach against creditors,
which results in protracted negotiations. By 2010, 92% of the
Argentine defaulted debt
has been restructured. However, ongoing litigation by holdout
creditors could lead to a
new Argentine default in the near future.
Concluding remarks
The Argentine economic crisis was caused by the undesirable

11. confluence of several
economic events: a hard currency peg, currency overvaluation,
economic rigidities,
inappropriate fiscal policy, external shocks, large scale foreign
currency borrowing
followed by a sudden stop in capital inflows and enduring IMF
support played an
important role in the course of the crisis. This, together with the
political and social
turmoil that accompanied the events, made the Argentine crisis
one of the most severe
emerging market crises in history. As world economic growth in
the early 2000s was
strong and Argentine producers benefitted from the strong
depreciation of the currency,
the Argentine economy was able to recover rather quickly.
Profound reforms were
therefore not implemented.

12. References
Blustein, P. (2005), ‘And the Money Kept Rolling In (And Out):
Wall Street, the IMF and the
Bankrupting of Argentina’
Feldstein, M. (2002), ‘Argentina’s Fall: Lessons from the Latest
Financial Crisis’, Foreign
Affairs, 81:2
Ozdemir, Y. (2007), ‘Politics of Price Stabilization: a
Comparative Analysis of Argentina,
Brazil, Israel, Mexico, and Turkey’, Pittsburgh: University of
Pittsburgh
http://www.imf.org/en/publications
Wikipedia: Argentina
Wikipedia: Argentinian Economic crisis
http://www.imf.org/en/publications
https://en.wikipedia.org/wiki/Economic_history_of_Argentina#c
ite_note-9