Argentine Financial Crisis 2001
The Argentine Financial Crisis of 2001 was a severe economic downturn characterized by a currency devaluation, sovereign debt default, and widespread social unrest. The crisis was triggered by a combination of factors including excessive government spending, a fixed exchange rate regime, and a lack of investor confidence. It led to a deep recession and had long-lasting effects on the Argentine economy.
5 Key excerpts on "Argentine Financial Crisis 2001"
eBook - ePubEurope on the Brink
Debt Crisis and Dissent in the European Periphery
- Tony Phillips, Tony Phillips(Authors)
- 2014(Publication Date)
- Zed Books(Publisher)
...5 | ARGENTINA 2001: A HETERODOX EXIT FROM THE CRISIS Roberto Lavagna 1 (translated by Tony Phillips) The Argentine crisis of 2001 and recovery between 2002 and 2006 The year 2001 was when the Republic of Argentina teetered towards its gravest economic crisis in more than 100 years, comparable only with the nation’s economic and political crisis of 1890. In December 2001, the economic programme known as the ‘convertibility plan’ collapsed. Established in 1991, this plan implemented a fixed currency peg, placing the value of the national currency (the Argentine peso) at a one-to-one level with the US dollar. 2 The convertibility plan established a form of currency board called the conversion reserve account 3 to implement this monetary policy. Argentina was the third largest economy in Latin America, placed between the thirtieth and the thirty-fifth slot in the ranking of the top 200 global economies. That such an economy might collapse wouldn’t necessarily imply a shake-up in the global economy. What Argentina did shake up, nonetheless, were certain intellectual certainties about the preconditions for a major crisis, and suppositions on how to address such a crisis. For many long years, the Argentine economic programme was considered an example to the world, to the extent that in 1998 – precisely the moment when it became clear that the Argentine economy had begun to slip – Michel Camdessus, 4 in his all-powerful role as managing director of the International Monetary Fund (IMF), presented Argentina’s then president, Carlos Menem, and described him as ‘exemplary’ 5 at the annual spring meeting of the IMF and the World Bank...
eBook - ePubForeign Exchange
A Practical Guide to the FX Markets
- Tim Weithers(Author)
- 2011(Publication Date)
- Wiley(Publisher)
...To add to these problems, on November 14, 2002, Argentina actually failed to repay a debt obligation to the World Bank (though they did pay the interest on that debt). This constituted a “credit event” (e.g., default, missed payment on borrowed money, bankruptcy, moratorium, restructuring under duress), which triggered credit default swaps—an increasingly common credit derivative instrument. These allowed the buyers of credit default protection, many of whom were investors in Argentinian debt (and who had paid a “premium” similar to an insurance premium for their protection) to deliver their defaulted securities for their face value (to the sellers of credit default protection). 11 It is significant that settlement of these credit default swaps occurred in an ordinary orderly capital markets (e.g., two-day settlement) fashion—as opposed to requiring a legal workout, as is the case with many bond defaults, which can take months to resolve. Since that time, Argentina has not only rebounded, but the government has had to actively manage the appreciation of the Peso (so as not to reverse the beneficial trade flows that have resulted from their weak currency). Although inflation is currently around 12%, real economic growth is over 10%. This combination, for the majority of Argentinians, appears to be very welcome—a far cry from an urban population recognizable for their practice of banging pots and pans in the street and, literally, attacking banks and foreign businesses. SUMMARY A “crisis,” according to most dictionaries, is a critical moment, an uncertain and worrisome time, an unstable situation, or a prelude to a breakdown or disaster...
eBook - ePubFear and Greed
Investment risks and opportunities in a turbulent world
- Nicolas Sarkis(Author)
- 2012(Publication Date)
- Harriman House(Publisher)
...This plan had worked in certain other situations elsewhere, but it did not do so on this occasion. The timing of the move was perhaps the main problem. Financial markets interpreted the suggestion of a change to the peg to mean there was a staged devaluation of the peso in the offing, which would hurt foreign holders of Argentine bonds. As investors took flight, Argentina’s government borrowing costs soared. The crisis builds On the advice of the IMF, Argentina’s government had tried to reduce its debt burden, which was at that time equal to 50 per cent of the size of the country’s economy. Within its first week in office, the new administration carried out spending cuts worth about US$1.4 billion. Further cuts and tax increases followed soon thereafter. Economic growth dried up almost completely. Having been able to borrow at a rate of nine per cent in July 2000, Argentina found itself required to pay 16 per cent when it tried to sell bonds again four months later. In desperation, Argentina turned from the bond markets to the IMF, the World Bank and the US Treasury, all of which demanded the country impose a seventh round of austerity measures. As part of these cutbacks, leading civil servants were paid in IOUs, as no cash was available. An angry rash of strikes ensued. By December 2001, the unemployment rate stood at 20 per cent. The IMF refused to release US$1.3bn in loans, citing the country’s inability to make the necessary further budget cuts. Argentinean financial assets were lain waste. The MerVal stock index dropped by more than seven per cent overnight, while the yield on Argentinean government bonds soared to 42 per cent above those on US Treasuries. [68] The sense of panic was not confined to foreign investors, though. Seeing the writing on the wall, Argentinean consumers rushed to withdraw their money, triggering a run on the banks. The government responded by freezing all bank accounts and then placing strict limits on withdrawal amounts...
- International Monetary Fund(Author)
- 1999(Publication Date)
- INTERNATIONAL MONETARY FUND(Publisher)
...But again these events exposed domestic policy weaknesses and inconsistencies. In the case of Mexico, the maintenance of an exchange rate band was not supported by consistently tight monetary and possibly fiscal policies, serious fragilities in the domestic financial system were partly linked to outdated, inefficient supervision, and there was a dependence on short-term borrowing to finance a fast-growing external current account deficit. Argentina also had experienced a widening current account deficit (in this case in the context of a fixed exchange rate backed by a currency board), although the banking system had been strengthened in previous years. However, the economic background against which the Tequila crisis developed was much healthier than that of the previous decade. The example of the banking sector is particularly relevant. The banking crisis that followed the debt crisis of the early 1980s was addressed in different ways in the region, and with uneven results. The Mexican government, for example, adopted a very radical approach, with the introduction from 1982 of comprehensive foreign exchange controls and the expropriation of the banks, with adverse results for confidence and economic performance in subsequent years. In Chile, the banks were not expropriated, but the government was forced to guarantee their external obligations and in the end had to absorb their debt, imposing a heavy burden on public finances and on the central bank’s balance sheet. (This issue was only resolved in 1996, over 14 years after the outbreak of the crisis.) The impact was largely similar in Argentina...
eBook - ePubRoutine Crisis
An Ethnography of Disillusion
- Sarah Muir(Author)
- 2021(Publication Date)
- University of Chicago Press(Publisher)
...In this way, the supposedly chaotic was captioned as a national crisis at the same time that the middle class was cast as a national subject, defined by a stance of epistemological clarity born of material loss. It was this process that allowed for the mutual constitution of an event—the crisis of 2001–2002—and a public—the Argentine middle class. Together, that event and that public ushered in a post-crisis social world with newly drawn horizons, contours, and possibilities, all pieced together out of the interpretive, instrumental, and existential materials that lay ready-to-hand. 2 Aligning History and Autobiography I did not initially set out to gather a set of life histories when I began fieldwork. However, I quickly found that my informants repeatedly and insistently offered me variants of that genre. In interviews and casual conversations alike, as people presented their theories about the crisis in the form of partly or overtly autobiographical narratives, I began to realize how important it was to attend to the form those narratives took. Focusing on their formal features allowed me to understand how the narratives rendered particular happenings comprehensible as “the crisis” and, in so doing, identified the individual speaker, the middle class, and the nation as isomorphic subjects, nearly perfectly aligned in their experiences, perceptions, and judgments. First, however, for those interested, a brief recounting of the developments that came to be known, almost immediately, as “the crisis of 2001–2002.” — The roots of the 2001–2002 Argentine financial crisis lay in a series of reforms some ten years earlier aimed at restructuring the national economy in order to address a cluster of problems, including soaring poverty rates, crippling hyperinflation, unserviceable levels of public debt, and rapidly declining salaries...
