The Argentine economic crisis was part of the situation that affected Argentina's economy during the late 1990s and early 2000s. As of 2005, the crisis is arguably over, though many challenges remain for the country. // Events and trends The 1990s are generally classified as having moved slightly away from the more conservative 1980s, but otherwise retaining the same mindset. ... Saddam Hussein shortly after his capture Major controversy over U.S. presidential election, 2000 September 11, 2001 terrorist attack on New Yorks World Trade Center and Virginias Pentagon killing almost 3000 people. ...

In truth, this was merely one of the many times of economic hardship and breakdowns suffered by Argentina, but it is the most recent and so far the most disruptive for economy and for society at large.

Origins

Argentina was subject to military dictatorship (alternating with weak, short-lived democratic governments) for many years. Huge debt was acquired for money later to be lost in different unfinished projects, the Falkland/Malvinas Islands War, and the state's takeover of private debts. Augusto Pinochet (sitting) was an army general who led a military coup in Chile in 1973. ... The Falklands War or the Malvinas War (Spanish: Guerra de las Malvinas), was an armed conflict between Argentina and the United Kingdom over the Falkland Islands, also known in Spanish as the Islas Malvinas, between March and June of 1982. ...

In 1983, democracy in the country was restored with the election of president Raúl Alfonsín. The new government's plans included stabilizing Argentina's economy, for which new loans were required. The state eventually became unable to pay the interest of this debt, the economy collapsed and inflation began increasing. In 1989, Argentina's inflation reached 200% per month, topping 3000% annually. President Alfonsín resigned six months before ending his term, and Carlos Menem took office. 1983 is a common year starting on Saturday of the Gregorian calendar. ... Raúl Alfonsín, in 2003 Raúl Ricardo Alfonsín Foulkes (born 13 March 1927) was president of Argentina from 10 December 1983 to 9 July 1989. ... Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. ... 1989 is a common year starting on Sunday of the Gregorian calendar. ... Carlos Saúl Menem (born July 2, 1930) was President of Argentina from July 8, 1989 to December 10, 1999 for the Justicialist Party (Peronist). ...

Menem, who had campaigned on a populist platform, immediately went back on his promises and began a plan of trade liberalization, labor deregulation and privatization of state companies which were the source of much spending (such as those providing the telephone, energy and water services). The terms of these privatizations were usually rather unfavourable to the Argentine state. Populism is a political philosophy or rhetorical style that holds that the common person is oppressed by the elite in society, and that the instruments of the State need to be grasped from this self-serving elite and used for the benefit and advancement of the people as a whole. ... Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. ... Deregulation is the process by which governments remove selected regulations on business in order to (in theory) encourage the efficient operation of markets. ... Privatization (sometimes privatisation, denationalization, or, especially in India, disinvestment) is the process of transferring property, from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector. ...

The 1990s

The fight against inflation did not go well. In 1991, under the rule of Minister of Economy Domingo Cavallo, the Argentine peso's monetary value was fixed by law to the value of the United States dollar. The law (Ley de Convertibilidad) stated that any citizen could go to a bank and ask for any amount of cash in pesos to be converted to an equal amount of dollars; in order to secure this "convertibility", the Central Bank was bound to keep its dollar reserves at the same level as the cash in circulation. 1991 is a common year starting on Tuesday of the Gregorian calendar. ... Domingo Cavallo was the finance minister of Argentina during the administration of President Carlos Menem, and also in President Fernando de la Rúas. ... The Argentine peso (originally established as Argentine new peso, or convertible peso), (ISO 4217: ARS) is the currency of Argentina. ... A fixed exchange rate, sometimes (less commonly) called a pegged exchange rate, is a type of exchange rate regime wherein a currencys value is matched to the value of another single currency (most often the US Dollar), to a basket of other currencies, or to another measure of value... The United States dollar, or American dollar, is the official currency of the United States. ... The United States dollar, or American dollar, is the official currency of the United States. ... Foreign exchange reserves are the foreign currency deposits held by national banks of different nations. ... Cash usually refers to money in the form of currency, such as bills or coins. ...

As a result of the convertibility law, inflation dropped sharply, price stability was assured, and the value of the currency was preserved. This raised the quality of life for many citizens, who could now afford to travel abroad, buy imported domestic appliances and electronic products, ask for credits in dollars at very low interest rates, etc. This article needs to be cleaned up to conform to a higher standard of quality. ... In finance, interest has three general definitions. ...

But Argentina had international debts to pay, and it needed to keep borrowing money from the International Monetary Fund and other financial entities. The fixed exchange rate made imports cheap, producing a constant flight of dollars away from the country and a progressive loss of Argentina's industrial infrastructure, which led to an increase in unemployment. Argentina thus became an unsuitable place for productive investment and a harbour for financial speculators. The flag of the International Monetary Fund (IMF) The International Monetary Fund (IMF) is the international organization entrusted with overseeing the global financial system by monitoring foreign exchange rates and balance of payments, as well as offering technical and financial assistance when asked. ... An industry is generally any grouping of businesses that shares a common method of generating profits, such as the movie industry, the automobile industry, or the cattle industry. It is also used specifically to refer to an area of economic production focused on manufacturing which involves large amounts of upfront... Dorothea Langes Migrant Mother depicts destitute pea pickers in California during the Great Depression. ... Investment is a term with several closely-related meanings in finance and economics. ... Speculation involves the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income ( via dividends, rent etc). ...

In the meantime, government spending continued to be high and corruption was rampant. Argentina's public debt grew enormously during the 1990s, and the country showed no true signs of being able to pay it. The IMF, however, kept lending money to Argentina and postponing its payment schedules.

Other countries, such as Mexico and Brazil (both of which also happen to be important trade partners for Argentina) faced economic crises of their own, leading other countries to mistrust Latin American countries moneywise, and affecting the overall economy of the region. The influx of foreign currency provided by the privatization of state companies had dried out, and after 1997 Argentine exports were harmed by the devaluation of the Brazilian real and a considerable international revaluation of the dollar. Latin America consists of the countries of South America and some of North America (including Central America and some the islands of the Caribbean) whose inhabitants mostly speak Romance languages, although Native American languages are also spoken. ...

By 1998, newly elected President Fernando de la Rúa faced a country where unemployment had risen to a critical point, and the undesirable effects of the fixed exchange rate were showing forcefully. Argentina entered a recession (which was to last three years, ending in a collapse). Stability became stagnation (even deflation at times), and the economic measures taken did nothing to avert it; in fact, the government continued the contractive economic policies of its predecessor. The possible solution (abandonment of the exchange peg, with a voluntary devaluation of the peso) was considered a political suicide and a recipe for economic disaster. By the end of the century, complementary currencies such as the LECOP and the Patacón (bonds issued by the national and provincial states) emerged due to the shortage of cash. 1998 is a common year starting on Thursday of the Gregorian calendar, and was designated the International Year of the Ocean. ... Fernando de la Rúa Fernando de la Rúa Fernando de la Rúa Bruno (born September 15, 1937) is an Argentine politician. ... A recession is usually defined in macroeconomics as a fall of a countrys real Gross National Product in two or more successive quarters of a year. ... Deflation (economics) Deflation (data compression) Deflation is the removal of loose soil by eolian (wind) processes This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ... Devaluation is reduction in the value of a currency. ... Complementary currency is a hypernym (superordinate) of local currency (also referred to as community currency) and sectoral currency. ... The LECOP was a bond issued by Argentine national government to replace the Patacón, which was issued by twenty-four of the provincial governments. ... The Patacón (officially called Letra de Tesorería para Cancelación de Obligaciones de la Provincia de Buenos Aires) was a bond issued by the government of the province of Buenos Aires, Argentina, during 2001. ...

The crisis

The flight of money away from Argentina increased. In 2001, people fearing the worst began withdrawing large sums of money from their bank accounts, turning pesos into dollars and sending them abroad. The government then enacted a set of measures (informally known as the corralito) that effectively froze all bank accounts, allowing for only minor sums of cash to be withdrawn. 2001: A Space Odyssey. ... For other uses, see Bank (disambiguation). ... Corralito was the informal name for the economic measures taken in Argentina during 2001 by economy minister Domingo Cavallo in order to stop the draining of bank accounts. ...

Because of the allowance limit, with the serious problems it caused in certain cases, many Argentines became enraged and took on the streets of important cities, especially Buenos Aires. They created a new form of protest, known as cacerolazo (banging pots and pans). This happened specially during the 2001 and 2002 periods. At first the cacerolazos were simply noisy demonstrations, but soon they included violence, which was directed especially to banks, foreign privatized companies and especially prominent American companies. Many businesses were forced to install metal barriers, as they were suffering from windows and glass facades being broken, and even fires being ignited at their doors. Billboards of such companies as Coca Cola and others were brought down by the masses. Buenos Aires (BWEH-naus EYE-ress, literally Good Winds in Spanish, but more akin to Fair Winds, as in navigation) is the capital of Argentina and its largest city and port, as well as one of the largest in South America. ... 2003 GMO USDA protest Protest expresses relatively overt reaction to events or situations: sometimes in favour, more often opposed. ... Cacerolazo is the name of a popular form of protest that consists in a group of people creating noise by banging pots, pans and other utensils in order to call for attention. ... 2001: A Space Odyssey. ... 2002 is a common year starting on Tuesday of the Gregorian calendar. ... This page is about protests. ... Roadside billboards frequently encourage passersby to visit local businesses. ... The wave shape (known as the dynamic ribbon device) present on all Coca-Cola cans throughout the world derives from the contour of the original Coca-Cola bottles. ...

Confrontations between the police and citizens became a common sight, and fires were also set on Buenos Aires avenues. The violent protests of December 20 and 21, 2001 in Plaza de Mayo, where demonstrators clashed with the police, ended with several dead, and precipitated the fall of the government. Fernando de la Rúa fled the Casa Rosada in a helicopter on December 21. A large bonfire Fire is a form of combustion. ... The December 2001 riots were a period of civil unrest and rioting in Argentina that took place during December of 2001, with the worst incidents taking place on December 20 and December 21, 2001, in Argentinas capital Buenos Aires. ...

During the last week of 2001, the interim government led by Adolfo Rodríguez Saá, facing the impossibility to meet debt payments, defaulted on the larger part of the public debt, totalling no less than 93,000 million dollars. Rodríguez Saá, utterly incapable to deal with the crisis and unsupported by his own party, resigned before the end of the year. The Peronist Eduardo Duhalde was appointed by Congress to take his place. Adolfo Rodríguez Saá Páez Montero (born July 25, 1947) is an Argentine politician of Peronist beliefs. ... Eduardo Alberto Duhalde Maldonado (born October 5, 1941) is a former president of Argentina. ...

The end of convertibility

Evolution of the cost of living in Argentina. The continuous blue line shows the price of basic needs, in Argentine pesos per month per adult person (corresponding to the poverty line). The discontinuous red line shows the price of the minimum food requirements. Note the abrupt increase in the first semester of 2002.

After much deliberation, Duhalde abandoned the fixed 1-to-1 peso-dollar parity that had been in place for ten years. In a matter of days, the peso lost a large part of its value in the unregulated market. A provisional "official" exchange rate was set at 1.40 pesos per dollar. A chart showing the evolution of the price of basic needs in Argentina, from 2000 to 2005. ... A chart showing the evolution of the price of basic needs in Argentina, from 2000 to 2005. ... The poverty line is the level of income below which one cannot afford to purchase all the resources one requires to live. ...

In addition to the corralito, the economy ministry dictated the pesificación ("peso-ification"), by which all bank accounts denominated in dollars would be converted to pesos at official rate. This measure angered most savings holders and appeals were made by many citizens to declare it unconstitutional.

After a few months, the exchange rate was left to float more or less freely. The peso suffered a huge devaluation, which in turn prompted inflation (since Argentina depended heavily on imports, and had no means to replace them locally at the time).

The economic situation became steadily worse with regards to inflation and unemployment during 2002. By that time the original 1-to-1 rate had skyrocketed to nearly 4 pesos per dollar, while the accumulated inflation since the devaluation was about 80%. (It should be noted that these figures were considerably lower than those foretold by most orthodox economists at the time.) The quality of life of the average Argentinian was lowered proportionally; many businesses closed or went bankrupt, many imported products became virtually inaccessible, and salaries were left as they were before the crisis.

Immediate effects

Many private companies were affected by the crisis: Aerolíneas Argentinas, for example, was one of the most affected Argentine companies, having to stop all international flights for various days in 2002. The airline came close to bankruptcy, but it survived. Aerolíneas Argentinas A340-200. ... 2002 is a common year starting on Tuesday of the Gregorian calendar. ... Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. ...

On the entertainment world, producers of television channels were forced to produce more reality shows than any other type of shows, because these were generally cheap to produce as compared to other programmes. Reality television is a genre of television programming in which the fortunes of real life people (as opposed to fictional characters played by actors) are followed. ...

Agriculture was also affected: Argentine products were rejected in some international markets, in fear that they might come damaged because of the poor conditions in which they grew, and the USDA put restrictions on Argentine food and drugs arriving at the United States. The U.S. Department of Agriculture, also called the Agriculture Department, or USDA, is a Cabinet department of the United States Federal Government. ...

The recovery

Eduardo Duhalde finally managed to stabilize the situation to a certain extent, and called for elections. On 25 May 2003 President Néstor Kirchner took charge. Kirchner kept Duhalde's minister of economy Roberto Lavagna in his post. Lavagna, a respected economist with moderate-center-wing views, showed a considerable aptitude at managing the crisis, with the help of heterodox measures. 2003 is a common year starting on Wednesday of the Gregorian calendar. ... Néstor Carlos Kirchner (born 25 February 1950) is the current President of Argentina. ... Roberto Lavagna is the Minister of Economy and Production of Argentina. ...

The economic outlook was completely different from that of the 1990s; the high exchange rate made Argentine exports cheap and competitive abroad, while discouraging imports. In addition, the high price of soy in the international market produced an injection of massive amounts of foreign currency (with China becoming a major buyer of Argentina's soy products). Binomial name Glycine max Soybeans (US) or soya beans (UK) (Glycine max) are a high-protein legume (Family Fabaceae) grown as food for both humans and livestock. ...

The government encouraged import substitution and accessible credit for businesses, staged an aggresive plan to improve tax collection, and set aside large amounts of money for social welfare, while controlling expenditure in other fields. Import substitution industrialization also called ISI is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports (mostly finished goods) with locally produced substitutes. ... A tax is a compulsory charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... Social welfare can be taken to mean the welfare or well-being of a society. ...

As a result of the administration's productive model and controlling measures (selling reserve dollars in the public market), the peso slowly revalued, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned. A tourist boat travels the River Seine in Paris, France Beaches make popular tourist resorts Tourist redirects here; for the album by Athlete, see Tourist (album) Tourism can be defined as the act of travel for the purpose of recreation, and the provision of services for this act. ...

Foreign currency reserves of Argentina's Central Bank, in millions of USD

The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening in order to keep the peso from revaluing further, which would have ruined the tax collection scheme (largely based on imports taxes and royalties) and discourage further reindustrialization. The Central Bank started buying dollars in the local market and stocking them as reserves. As of August 2005, foreign currency reserves have reached $25 thousand million and continue rising. The downside of this strategy is that these dollars have to be bought with freshly-emitted pesos, which may induce inflation. The Central Bank neutralizes a part of this monetary emission by selling Treasury letters. In this way the exchange rate has been stabilized near a reference value of 3 pesos to the dollar. A chart showing the evolution of the international currency reserves of the BCRA (Banco Central de la República Argentina, Argentinas Central Bank), approx. ... A chart showing the evolution of the international currency reserves of the BCRA (Banco Central de la República Argentina, Argentinas Central Bank), approx. ... Balance of trade figures are the sum of the money gained by a given economy by selling exports, minus the cost of buying imports. ... Ongoing events • 2005 Kuomintang visits to Mainland • Bill C-38 (Canada gay marriage) • German Visa Affair 2005 • Expo 2005 in Aichi, Japan • Fuel prices • Election of OAS Secretary General • Stanislav Gross scandal in Czech republic Upcoming events Deaths in May May 3: Jagjit Singh Aurora May 3: Don Canham May... A treasury is the part of a government which manages all money and revenue. ...

The currency exchange issue is complicated by two mutually opposing factors: a sharp increase in imports since 2004 (which raises the demand of dollars), and the return of foreign investment (which brings fresh currency from abroad) after the successful restructuring of about three quarters of the external debt. The government has set up controls and restrictions aimed at keeping short-term speculative investment from destabilizing the financial market.

Debt restructuring

Main article: Argentine debt restructuring

When the default was declared in 2002, foreign investment fled the country, and capital flow towards Argentina ceased almost completely. The Argentine government met severe challenges trying to refinance the debt. The state had no spare money at the time, and the Central Bank's foreign currency reserves were almost depleted. Argentina went through an economic crisis since the mid-1990s; though it is debatable whether this crisis has ended, the situation has been more stable, and improving, since 2003. ...

The Argentine government kept a firm stance, and finally got a deal by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25-35% of the original) and at longer terms.

References

• The Crisis that Was Not Prevented: Lessons for Argentina, the IMF, and Globalisation, Jan Joost Teunissen and Age Akkerman (eds.), Fondad, 2003, book, PDF)
• Argentina Didn't Fall on Its Own (GlobalExchange.org)
• Argentina's debt restructuring: A victory by default? (Economist.com)

External links

• Banco Central de la República Argentina (Argentina's Central Bank website, with various economic statistics available on the fly)