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Argentina Economic Crisis

Argentina Economic Crisis

Introduction

In December 2001, Argentina’s economic crisis began. A wave of strikes and anti-government demonstrations swept over the country. Dozens of people were killed, and hundreds were wounded. Economic collapse provoked acute political crisis. This paper aims to point out the main reasons that caused the economic crisis, its impact on economy, politics and society, the main participants in it, and how recovery was done after it.

Main Reasons

Since the late 1940s, Argentina started to lag behind advanced countries. During post-war period, many European and North American countries abruptly accelerated their technological development and entered the world market with brand new goods, while Argentina continued to sell corn and beef. By the end of the 1980s, the situation became critical (CwnEconomy, 2012). The country was swept by hyperinflation, and the government was up to ears in debts.  In 1989, Carlos Saúl Menem became the president and Domingo Cavallo landed a position of a Minister of Economy (CwnEconomy, 2012). Domingo Cavallo sold the majority of public enterprises to private companies, whose owners were mainly foreigners. The state sector was almost liquidated, and home market was opened to the foreign products.

In the beginning of the 1990s, Argentinian peso was equated to American dollar (CwnEconomy, 2012). The standard of life grew rapidly. Therefore, a variety of imported goods appeared in the shops, and different services became available. People received almost unlimited possibilities to obtain credits, including mortgage ones, and hundreds of families moved to the new houses and flats.

However, in the second part of the 1990s, Cavallo’s economic program began to falter and economics went into recession. The foreign competitors “strangled” the thousands of the local enterprises, and Argentinian businessmen could not compensate the loss of the home market by the foreign market penetration. Argentinian peso equated to American dollar, which made Argentinian goods too expensive and noncompetitive. Gains went abroad, and state budget became more and more scarce.

Impact n Economy, Politics and Society

In 1999, the opposition came to power in Argentina, but unfortunately, the situation did not change (CwnEconomy, 2012). The new president Fernando de la Rua continued the old politics and appointed Cavallo on the position of a Minister of Economy again. As a result, the external debt of the country grew higher and higher, and by the beginning of the 21st century, it had achieved an astronomical sum of 140 billion dollars.

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Business activity fell, and the real incomes decreased, but at the same, time unemployment and the degree of social tension grew. In order to stop “capital flight”, on  December 3, 2001, Covallo imposed 90-day-limitation for withdrawing money from the banks – 250 pesos per week (CwnEconomy, 2012). As a result, 60 billion pesos mainly belonging to the middle class became “closed” in banking system. By that time, big business and rich investors had cashed or transferred their money abroad. Finally, Argentinians were no longer able to tolerate such state of things. On December 13, 2001, the anti-government demonstrations swept the country (CwnEconomy, 2012). To bring the situation under control, the government announced the distribution of free products, but this measure did not cover all the needs of people.

On December 19, 2001, President of Argentina declared a state of emergency (CwnEconomy, 2012). Argentinians responded with new massive demonstrations of greater intensity. In different districts of Argentina, especially in Buenos-Aires, protesters clashed with forces of law and order, committed robberies, assaults on shops, banks, and official institutions. The situation went out of control. On December 20, at dawn, more than thirty thousand people gathered near the Pink House, the presidential residency, and demanded the resignation of the government (CwnEconomy, 2012). Cavallo was the first to resign, confirming by this move the collapse of his economic policy. Nevertheless, this could not stop anyone.

The president ordered to suppress protests using force and remove protesters from the streets. Police patrols went in the streets, but peoplle started throwing pans and other things at them. The civil resistance grew. On the same day, at 8 pm, the cornered Fernando de la Rua resigned after 740 days of ruling and left the Pink House by helicopter (CwnEconomy, 2012).

Recovery

On December 21, 2001, the convened Legislative Assembly elected senator Ramon Puerta as a provisional president, but on the December 23, he was substituted by provincial governor Adolfo Rodriguez Saa (CwnEconomy, 2012). The new president declared a moratorium on payments on sovereign external debt of Argentina. It was emphasized that the saved funds would be used “for the creation of work places and supplying of social progress security” (CwnEconomy, 2012). It was assumed, that the new president would stay in his post up to the general elections on March 3, 2002, but on December 30, 2001, Saa resigned (CwnEconomy, 2012). Until January 1, 2002, the presidential post was occupied by Eduardo Oscar Camaño (CwnEconomy, 2012).

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Declaring of moratorium on the external debt was the most prominent default in history. However, this extraordinary measure did not apply to Argentinian debts to the IMF, WBG, IMB, and to the state-guaranteed loans. The total amount of financial obligations exceeded 80 billion dollars.

On January 1, 2002, the Legislative Assembly elected new President Eduardo Alberto Duhalde (CwnEconomy, 2012). It fell to his lot to save the country and propose Argentinians the alternative model of the economy. To draw a lesson from the crisis of 2001-2002, the new authorities of Argentina changed the direction of economic policy completely. Firstly, the country returned to the economic life. The special stress was laid on the massive public investments in the infrastructure and credits to the private sector. Thus, the public private partnership began to form, which was the earnest of the successful modernization of the entire economic system. Secondly, the strict financial discipline was established. Nowadays, Argentina’s budget grows every year. Thirdly, the conditions for the rapidly growing export and promotion of Argentinian goods to the world market were provided.

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