The Argentina Crisis - The IMF's Guinea Pig

Résumé du document

In 2001, Argentina, the former model pupil of the International Monetary fund of the nineties, declared default in all its public debt. This is one of the most harrowing economic crises in the history of Argentina. Several crisis-fighting actions like the freezing of bank accounts or the devaluation of the peso by more than 75% led to far-reaching socio-economic consequences for the people, in addition to a loss in the financial and political sector of the country. A large part of the Argentinean middle class became unemployed, which caused riots in the streets, leading to political unrest and bringing down several governments in a row. This made crisis management very difficult, since there was no strong political leader to properly fight the situation. Also the military did not step in, as it has done previously during crises. Argentina still has not recovered from the crisis, which got known as the largest debt default in its history. Even though the economy improved strongly after 2002, living standards only improved finally in mid-2003. Accordingly, Argentina still has a long way for recovery ahead. This paper will try to give an overview of how the crisis evolved over time, and how it was possible for a recession starting in 1998m, to develop to a full grown crisis, taking such huge dimensions and causing the first economic depression of the 21st century. Possible sources of this crisis were examined, for example possible contagion effects of the Russian Crisis in 1998. Of particular interest will be the investigation of the main players in this tragedy and their role in the crisis, namely the International Monetary Fund (IMF) and the Argentinean Government. The question arises whether the policies and efforts of both the institutions were adequate for the situation preceding the crisis.

Extraits

[...] Argentina still has not recovered from the crisis, which got known as the largest debt default in history. Even though the economy rebound strongly after 2002, living standards only improved finally in mid-2003 (http://web.worldbank.org Accordingly Argentina still has a long way of recovery ahead. This paper will try to give an overview of how the crisis evolved over time and how it was possible for a recession starting in 1998 to develop to a full grown crisis, taking such huge dimensions and causing the first economic depression in the 21st century. [...]

[...] The argentina crisis - the IMF's Guinea Pig Table of contents 1. Introduction 2. Chronology of the Crisis 3. Economic and Social Effects 4. Investigation of Policies 5. Handling of the Crisis 6. Conclusion References Appendix 1. Introduction In 2001, Argentina, the former model pupil of the International Monetary fund of the nineties, declared default on all its public debt. This is only the tip of the iceberg of one of the most harrowing economic crises in the history of Argentina. [...]

[...] Argentina desperately needed the funds and therefore agreed to the IMF's terms, by committing itself to a zero-deficit strategy, which in our opinion is counterproductive in a recession. Nevertheless, the IMF approach alone could not have resulted in the default of Argentina. The political situation plays another very important role. Argentina has always been a rather volatile country concerning the number of presidents and ministers of economy. Corrales counts 24 presidents and 58 ministers in the time period between 1930 and 1958. [...]

[...] [Draft]. Copyright 2002 by University of California, Los Angeles And National Bureau of Economic Research. Edwards S. (2002). A Simple Answer for Argentina: Follow Chile's Example. The Wall Street Journal. Retrieved from the WWW: http://www.nber.org/~confer/2002/argentina02/argentina_bg.html Eichengreen, B. (1999). Towards a new International Financial Architecture: A Practical Post-Asia Agenda. Washington DC: Institute for International Economics Eichengreen, B. (2002). [...]

[...] First, the IMF should refine its strategy of being a policeman. More emphasis should be put into the investigation of debt dynamics in a country, before lending. Furthermore, reforms on the part of the IMF might be suggesting restructuring within a country during prosperous times, in order to avoid crises. Second, the investors need to regain confidence in Argentina, so several proposals have been suggested. The continued debt conversion seemed to work, even though the change from short-term to long-term debt still might cause problems in the future. [...]