The
Argentine economic crisis was a financial situation that affected
ArgentinaArgentina, officially the Argentine Republic , is the second largest country in South America, constituted as a federation of 23 provinces and an autonomous city, Buenos Aires. It is the eighth largest country in the world by land area and the largest among Spanish-speaking nations, though Mexico,...
's
economyArgentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector and a diversified industrial base. Historically, however, Argentina's economic performance has been very uneven, in which high economic growth alternated with severe recessions,...
during the late 1990s and early 2000s.
MacroeconomicallyMacroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national or regional economy as a whole. Along with microeconomics, macroeconomics is one of the two most general fields in economics. It is the study of the behavior and decision-making of entire...
speaking, the critical period started with the decrease of real
GDPThe gross domestic product or gross domestic income is a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year...
in 1999 and ended in
2002-January:* January 1: The Legislative Assembly gathers and chooses senator Eduardo Duhalde as interim president.* January 2: President Duhalde announces the end of the 1:1 peso-dollar fixed exchange rate after almost 11 years.-June:...
with the return to GDP growth, but the origins of the collapse of Argentina's economy, and their effects on the population, can be found in action before. As of
2005-January:* January 11: The state fines power distribution companies and national water company on grounds of bad quality service, and reclaims unpaid fines and unfulfilled investment goals, for a total of more $50 million....
, arguably the crisis was over, though many challenges remain for the country.
Origins
Argentina was subject to
military dictatorshipA military dictatorship is a form of government wherein the political power resides with the military. It is similar but not identical to a stratocracy, a state ruled directly by the military....
(alternating with weak, short-lived democratic governments) for many years, that resulted in a number of significant economic problems. During the
National Reorganization ProcessThe National Reorganization Process was the name used by its leaders for the military government that ruled Argentina from 1976 to 1983 The National Reorganization Process (in Spanish, Proceso de Reorganización Nacional, often simply El Proceso) was the name used by its leaders for the military...
(1976-1983) huge debt was acquired for money that was later lost in different unfinished projects, the
Falklands WarThe Falklands War , also called the Falklands Conflict/Crisis, was fought in 1982 between Argentina and the United Kingdom over the disputed Falkland Islands and South Georgia and the South Sandwich Islands...
, and the state's takeover of private debts; in this period, a
neoliberalNeoliberalism is a synonym of classical economic liberalism. The term was coined in 1938 at the Colloque Walter Lippmann by the German sociologist and economist Alexander Rüstow, one of the fathers of Social market economy. The label is referring to a redefinition of classical liberalism,...
economic platform was introduced. By the end of the military government the country's industries were severely affected and unemployment, calculated at 18% (though official figures claimed 5%), was at its highest point since the depression.
In 1983,
democracyDemocracy is a system of government in which either the actual governing is carried out by the people governed , or the power to do so is granted by them...
in the country was restored with the election of president
Raúl AlfonsínRaúl Ricardo Alfonsín was an Argentine lawyer, politician and statesman, who served as the President of Argentina from December 10, 1983, to July 8, 1989. Alfonsín was the first democratically-elected president of Argentina following the military government known as the National Reorganization...
. The new government's plans included stabilizing
Argentina's economyArgentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector and a diversified industrial base. Historically, however, Argentina's economic performance has been very uneven, in which high economic growth alternated with severe recessions,...
including the creation of a new currency (the
AustralThe austral was the currency of Argentina between June 15, 1985 and December 31, 1991. It was subdivided into 100 centavos. The symbol was an uppercase A with an extra horizontal line . This symbol appeared on all coins issued in this currency , to distinguish them from earlier currencies...
, first of its kind not to carry the word
peso as part of its name), for which new loans were required. The state eventually became unable to pay the interest of this debt and confidence in the
AustralThe austral was the currency of Argentina between June 15, 1985 and December 31, 1991. It was subdivided into 100 centavos. The symbol was an uppercase A with an extra horizontal line . This symbol appeared on all coins issued in this currency , to distinguish them from earlier currencies...
collapsed.
InflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
, which had been held to 10 to 20% a month, spiraled out of control. In July 1989, Argentina's inflation reached 200% that month alone, topping 5,000% for the year. During the Alfonsin years, unemployment did not substantially increase; but, real wages fell by almost half (to the lowest level in fifty years). Amid
riotsThe 1989 food riots were a series of riots and related episodes of looting in stores and supermarkets in Argentina, during the last part of the presidency of Raúl Alfonsín, between May and June 1989...
, President Alfonsín resigned five months before ending his term, and
Carlos MenemCarlos Saúl Menem is an Argentine politician who was President of Argentina from July 8, 1989 to December 10, 1999.-Early life:...
, who was already President-elect, took office.
Menem, who had campaigned on a
populistPopulism is a political discourse that juxtaposes "the people" with "the elites." Populism may comprise an ideology urging social and political system changes and/or a rhetorical style deployed by members of political or social movements...
platform, had a lukewarm start regarding the country's economy under ministers Miguel Ángel Roig (who died after a few days in office) and Antonio Erman González, but then went back on his promises and began a plan, aligned on the economically liberal
Washington consensusThe term Washington Consensus was initially coined in 1989 by John Williamson to describe a set of ten specific economic policy prescriptions that he considered should constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, DC-based institutions such...
, of trade liberalisation, labor
deregulationDeregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
and privatisation of state companies which were the source of "much spending "(such as those providing the telephone, energy and water services).
The 1990s
The fight against
inflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
did go well , and Argentina began to recover. In early 1991, under the rule of Minister of Economy
Domingo CavalloDomingo Felipe "Mingo" Cavallo is an Argentine economist and politician. He has a long history of public service and is known for implementing the Convertibilidad plan, which fixed the dollar-peso exchange rate at 1:1 between 1991 and 2001, which brought the Argentine inflation rate down from over...
, executive measures fixed the value of Argentine currency at 10,000
australesThe austral was the currency of Argentina between June 15, 1985 and December 31, 1991. It was subdivided into 100 centavos. The symbol was an uppercase A with an extra horizontal line . This symbol appeared on all coins issued in this currency , to distinguish them from earlier currencies...
per
United States dollarThe United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
. Furthermore, any citizen could go to a bank and convert any amount of domestic currency to dollars. To secure this "
convertibilityConvertibility is the quality of paper money substitutes which entitles the holder to redeem them on demand into money proper.Historically, the banknote has followed a common or very similar pattern in the western nations. Originally decentralized and issued from various independent banks, it was...
," the Central Bank of Argentina had to keep its
dollarThe United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
foreign exchange reservesForeign exchange reserves in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions...
at the same level as the
cash in circulationIn economics, the monetary base is a term relating to the money supply, the amount of money in the economy. The monetary base comprises only coins, paper money, and commercial banks' reserves with the central bank...
. The initial aim of such measures was to ensure the acceptance of domestic currency, since during 1989 and 1990
hyperinflationIn economics, hyperinflation is inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value....
peaks, people had started to reject it as payment, demanding U.S. dollars instead. This regime was later fixated by a law (
Ley de Convertibilidad) which restored the
pesoThe word peso was the name of a coin that originated in Spain and became of immense importance internationally. Peso is now the name of the monetary unit of several former Spanish colonies...
as the Argentine currency, with a monetary value
fixedA fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
by law to the value of the
United States dollarThe United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
.
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 lifeThe term quality of life is used to evaluate the general well-being of individuals and societies. The term is used in a wide range of contexts, including the fields of international development, healthcare, and political science. Quality of life should not be confused with the concept of...
for many citizens, who could now afford to travel abroad, buy imported goods or ask for credits in dollars at very low
interestInterest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in...
rates.
But Argentina had international debts to pay, and it needed to keep borrowing money. 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 infrastructureAn industry is the manufacturing of a good or service within a category. Although industry is a broad term for any kind of economic production, in economics and urban planning industry is a synonym for the secondary sector, which is a type of economic activity involved in the manufacturing of raw...
, which led to an increase in
unemploymentUnemployment occurs when a person is available to work and seeking work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed...
.
In the meantime, government spending continued to be high and
corruptionPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
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
International Monetary FundThe International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments...
, however, kept lending money to Argentina and postponing its payment schedules. Massive tax evasion and
money launderingMoney laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source. It is a crime in many jurisdictions with varying definitions...
explained a large part of the evaporation of funds toward offshore banks. A congressional committee started investigations in 2001 about accusations that the Central Bank of Argentina's governor, Pedro Pou, as well as part of the board of directors, had failed to investigate cases of alleged money laundering through Argentina's financial system .
ClearstreamClearstream Banking S.A. is the custody and settlement division of Deutsche Börse, based in Luxembourg.It was created in January 2000 through the merger of Cedel International and Deutsche Börse Clearing, part of the Deutsche Börse Group, which owns the Frankfurt Stock Exchange. Cedel, established...
was also accused of being instrumental in this global financial process.
Other countries, such as
MexicoThe United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
and
BrazilBrazil , officially the Federative Republic of Brazil , is a country in South America. It is the fifth largest country by geographical area, occupying nearly half of South America, the fifth most populous country, and the fourth most populous democracy in the world. Bounded by the Atlantic Ocean...
(both of which also happen to be important trade partners for Argentina) faced economic crises of their own, leading other countries to mistrust
Latin AmericaLatin America is a region of the Americas where Romance languages – particularly Spanish, Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,501 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
n countries moneywise, and affecting the overall economy of the region. The influx of foreign currency provided by the
privatisationPrivatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector...
of state companies had dried out, and after 1999 Argentine exports were harmed by the
devaluationDevaluation is a reduction in the value of a currency with respect to other monetary units. In common modern usage, it specifically implies an official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate...
of the
Brazilian realThe real is the present-day currency of Brazil and was also the currency during the period 1690 to 1942. When the first real circulated, the plural used was réis. The currently used plural form is reais, with the symbol R$ and ISO 4217 code BRL. The modern real is subdivided into 100 centavos...
and a considerable international
revaluationRevaluation means a rise of a price of goods or products. This term is specially used as revaluation of a currency, where it means a rise of currency to the relation with a foreign currency in a fixed exchange rate. In floating exchange rate correct term would be appreciation. The antonym of...
of the dollar, effectively revaluing the peso against its major trading partners, Brazil (30% of total trade flows) and the
euro areaThe eurozone is an economic and monetary union of 16 European Union member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,...
(23% of total trade flows).
By 1999, newly elected President
Fernando de la RúaFernando de la Rúa is an Argentine politician. He was president of the country from December 10 1999 to December 21 2001 for the Alliance for Work, Justice and Education ....
faced a country where unemployment had risen to a critical point, and the undesirable effects of the fixed exchange rate were showing forcefully. In 1999 Argentina's
Gross domestic productThe gross domestic product or gross domestic income is a basic measure of a country's economic performance and is the market value of all final goods and services made within the borders of a country in a year...
dropped 4% and the country entered a
recessionIn economics, a recession is a general slowdown in economic activity over a long period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way...
(which was to last three years, ending in a collapse).
Economic stabilityEconomic stability refers to an absence of excessive fluctuations in the macroeconomy. An economy with fairly constant output growth and low and stable inflation would be considered economically stable...
became
economic stagnationEconomic stagnation, often called simply stagnation, is a prolonged period of slow economic growth . Under some definitions, "slow" means significantly slower than potential growth as estimated by experts in macroeconomics...
(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
devaluationDevaluation is a reduction in the value of a currency with respect to other monetary units. In common modern usage, it specifically implies an official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate...
of the peso) was considered a political suicide and a recipe for economic disaster. By the end of the century, a spectrum of
complementary currenciesComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
had emerged.
While the
provincesArgentina is subdivided into twenty-three provinces and one autonomous city...
had always issued
complementary currencyComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
in the form of
bondsIn finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity...
and drafts to brave shortages of cash, the maintenance of the convertibility regime led to this being done in an unprecedented scale, leading to their being called "
quasi-currenciesComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
", the strongest of them being Buenos Aires province's
PatacónThe Patacón was a bond issued by the government of the province of Buenos Aires, Argentina, during 2001...
. The national state also issued its own
quasi-currencyComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
-the
LECOPThe LECOP was a bond issued by Argentine national government. LECOP , stands for Letra de Cancelación de Obligaciones Provinciales ....
.
The crisis
Argentina quickly lost the confidence of investors and the flight of money away from the country increased. In
2001-December:December 2001 riots in Argentina:* 16 December: Unemployed activists and protestors demanding food from supermarkets cause several incidents in Greater Buenos Aires....
, people fearing the worst began withdrawing large sums of money from their
bank accountA bank account is a financial account with a banking institution, recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank....
s, turning pesos into dollars and sending them abroad, causing a
run on the banksA bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
. The government then enacted a set of measures (informally known as the
corralitoCorralito was the informal name for the economic measures taken in Argentina at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run, and which were fully in force for one year. The corralito almost completely froze bank accounts and forbade withdrawals from U.S...
) that effectively froze all bank accounts for twelve months, allowing for only minor sums of cash to be withdrawn.
Because of this allowance limit and the serious problems it caused in certain cases, many Argentines became enraged and took to the streets of important cities, especially
Buenos AiresBuenos Aires is the capital, and largest city, of Argentina, currently the second-largest metropolitan area in South America, after São Paulo. It is located on the eastern shore of the Río de la Plata, on the southeastern coast of the South American continent...
. They engaged in a form of popular
protestProtest expresses relatively overt reaction to events or situations: sometimes in favor, though more often opposed. Protesters may organize a protest as a way of publicly and forcefully making their opinions heard in an attempt to influence public opinion or government policy, or may undertake...
that became known as
cacerolazoA cacerolazo or cacerolada is a form of popular protest practised in certain Spanish-speaking countries – in particular Argentina – which consists in a group of people creating noise by banging pots, pans, and other utensils in order to call for attention.The word comes from Spanish cacerola, which...
(banging pots and pans). These protests occurred especially during the period of 2001 to 2002. At first the
cacerolazos were simply noisy
demonstrationsA demonstration is a form of nonviolent action by groups of people in favor of a political or other cause, normally consisting of walking in a march and a meeting to hear speakers...
, but soon they included property destruction, often directed at banks, foreign privatized companies, and especially big American and European companies. Many businesses installed metal barriers because windows and glass facades were being broken, and even fires being ignited at their doors.
BillboardsA billboard is a large outdoor advertising structure , typically found in high traffic areas such as alongside busy roads. Billboards present large advertisements to passing pedestrians and drivers...
of such companies as Coca Cola and others were brought down by the masses of demonstrators.
Confrontations between the police and citizens became a common sight, and
fireFire is the rapid oxidation of a combustible material releasing heat, light, and various reaction products such as carbon dioxide and water. If hot enough, the gases may become ionized to produce plasma. Depending on the substances alight, and any impurities outside, the color of the flame and the...
s were also set on Buenos Aires avenues. Fernando de la Rúa declared a
state of emergencyA state of emergency is a governmental declaration that may suspend certain normal functions of government, alert citizens to alter their normal behaviors, or order government agencies to implement emergency preparedness plans. It can also be used as a rationale for suspending civil liberties...
but this only worsened the situation, precipitating the violent
protests of 20 and 21 December 2001The December 2001 riots were a period of civil unrest and rioting in Argentina, which took place during December 2001, with the most violent incidents taking place on December 19 and December 20 in the capital, Buenos Aires.- Background :...
in
Plaza de MayoThe Plaza de Mayo is the main square in downtown Buenos Aires, Argentina. It is located at and it is flanked by Hipólito Yrigoyen, Balcarce, Rivadavia and Bolívar streets....
, where demonstrators clashed with the police, ended with several dead, and precipitated the fall of the government. De la Rúa eventually fled the
Casa RosadaLa Casa Rosada , officially known as the Casa de Gobierno or Palacio Presidencial , is the official seat of the executive branch of the Government of Argentina .The Casa Rosada sits at the...
in a helicopter on 21 December.
Since De la Rúa's vice president,
Carlos ÁlvarezCarlos Alberto "Chacho" Álvarez is an Argentine politician; he was Vice-President of Argentina during part of President Fernando de la Rúa's mandate, and currently heads the Mercosur Secretariat....
, had resigned in October 2000, a political crisis ensued. Following presidential succession procedures established in the Constitution, the president of the Senate
Ramón PuertaFederico Ramón Puerta is an Argentine Peronist politician who has served as a governor, senator and national deputy and effectively acted as President of Argentina during 2001....
took office but quickly resigned, followed by the president of the Chamber of Deputies,
Eduardo CamañoEduardo Oscar Camaño is an Argentine Justicialist Party politician. He was acting head of the executive branch of the country for two days between December 31, 2001 and January 1, 2002....
. The
Legislative AssemblyLegislative Assembly is the name given in some countries to either a legislature, or to one of its chambers. The name is used by a number of member-states of Commonwealth of Nations, as well as in a number of Latin American countries....
(a body formed by merging both chambers of the Congress) convened with the goal of creating a more legitimate interim government. By law, the candidates were its own members plus the Governors of the Provinces -they finally appointed
Adolfo Rodríguez SaáAdolfo Rodríguez Saá Páez Montero is an Argentine Peronist politician. He was the governor of the province of San Luis during several terms, and briefly served as President of Argentina....
, then governor of
San LuisSan Luis, the Spanish name for Saint Louis, is a common toponym in parts of the world where that language is or was spoken. It may refer to:*Argentina** San Luis Province** San Luis, Argentina, that province's capital city*Colombia...
. During the last week of 2001, the interim government led by Rodríguez Saá, facing the impossibility of meeting debt payments,
defaultedIn finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
on the larger part of the public debt, totalling no less than 93 billion.
Politically, the most heated debate involved the time for the following elections -the spectrum ranged from March 2002 to October 2003 (the original date for the ending of De la Rúa's office).
Rodríguez Saá's economy team came up with a project designed to preserve the convertibility regime, dubbed the "Third Currency" Plan. It consisted of creating a new, non-convertible currency called
Argentino coexisting with convertible pesos and U.S. dollars. It would only circulate as cash (checks, promissory notes or other instruments could be nominated in pesos or dollars but not in Argentinos) and would be partially guaranteed with federally-managed land -such features were expected to counterbalance inflationary tendencies.
Argentinos having legal currency status would be used to redeem all
complementary currencyComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
already in circulation—the acceptance of which as a means of payment was quite uneven. It was hoped that preservation of convertibility would restore public confidence, while the non-convertible nature of this currency would allow for a measure of fiscal flexibility (unthinkable with pesos) that could ameliorate the crippling recession of economy. Critics called this plan merely a "controlled devaluation"; its advocates countered that since controlling a devaluation is perhaps its thorniest issue, this criticism was a praise in disguise. The "Third Currency" plan had enthusiastic supporters among mainstream economists (the most notorious being perhaps
Martín RedradoMartín Redrado is an Argentine economist and policy-maker, currently President of the Central Bank of Argentina.-Life and times:...
, current president of the
central bankThe Central Bank of Argentina is the central bank of Argentina.Founded in by six Acts of Congress enacted on 28 May 1935, the bank replaced Argentina's Currency board, which had been in operation since 1899...
) citing sound technical arguments. However, it could never be implemented because the Rodríguez Saá government lacked the political support required.
Rodríguez Saá, utterly incapable of dealing with the crisis and unsupported by
his own partyThe Justicialist Party is a Peronist political party in Argentina, and the largest component of the Peronist movement.It is led by Daniel Scioli. The current president Cristina Fernández de Kirchner and former presidents Carlos Menem and Eduardo Duhalde are members...
, resigned before the end of the year. The Legislative Assembly convened again, appointing Peronist
Eduardo DuhaldeEduardo Alberto Duhalde is a former president of Argentina.-Biography:Duhalde was born in Lomas de Zamora, in the Greater Buenos Aires. He graduated as a lawyer in 1970. In 1987 he became a member of the Argentine National Congress and became vice-president under Carlos Menem from 1989 to his...
-then a Senator for the Buenos Aires province-to take his place.
The end of convertibility
After much deliberation, Duhalde abandoned in January 2002 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 1.4 pesos per dollar.
In addition to the
corralito, the Ministry of Economy 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 depreciation, 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.
Since the volume of pesos didn't fit the demand for cash (not even after the devaluation) huge quantities of a wide spectrum of
complementary currencyComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
kept circulating alongside them. Fears of hyperinflation as a consequence of devaluation quickly eroded the attractiveness of their associated revenue, originally stated in convertible pesos. Their acceptability now ultimately depended on the State's willingness to take them as payment of taxes and other charges, consequently becoming very irregular. Very often they were taken at less than their nominal value -while the Patacón was frequently accepted at the same value as peso,
Entre RíosEntre Rios may refer to:*Entre Ríos Province, Argentina*Republic of Entre Ríos, a former South American country*Entre Rios, Santa Catarina, a city of the Santa Catarina State, Brazil*Entre Ríos , an Argentinian ship...
's
Federal was among the worst-faring, at an average 30% as the provincial government that had issued them was reluctant to take them back. There were also frequent rumors that the Government would simply banish
complementary currencyComplementary currency is a currency which is meant to be used as a complement to a national currency. Complementary currency is sometimes referred to as complementary community currency or as community currency...
overnight (instead of redeeming them, even at disadvantageous rates), leaving their holders with useless printed paper.
Immediate effects
Many private companies were affected by the crisis:
Aerolíneas ArgentinasAerolíneas Argentinas is the largest domestic and international airline in Argentina and serves as Argentina's flag carrier. Aerolíneas Argentinas and LAN Airlines are the only Latin American airlines that fly to Oceania.-History:...
, 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
bankruptcyBankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed or initiate a restructuring...
, but survived.
Most
barterBartering is a medium in which goods or services are directly exchanged for other goods and/or services without a common unit of exchange . It can be bilateral or multilateral, and usually exists parallel to monetary systems in most developed countries, though to a very limited extent...
networks, viable as devices to ameliorate the shortage of cash during the recession, collapsed as large numbers of people turned to them, desperate to save as many pesos as they could for exchange for hard currency as a palliative for uncertainty.
Several thousand newly homeless and jobless Argentines found work as
cartoneros, or cardboard collectors. The 2003 estimation of 30,000 to 40,000 people scavenged the streets for cardboard to eke out a living by selling it to recycling plants. This method accounts for only one of many ways of coping in a country that at the time suffered from an unemployment rate soaring at nearly 25%.
AgricultureAgriculture is the production of food and goods through farming and forestry. Agriculture was the key development that led to the rise of human civilization, with the husbandry of domesticated animals and plants creating food surpluses that enabled the development of more densely populated and...
was also affected: Argentine products were rejected in some international markets, for fear they might arrive damaged from the poor conditions they grew in, and the
USDAThe United States Department of Agriculture is the United States federal executive department responsible for developing and executing U.S. federal government policy on farming, agriculture, and food...
put restrictions on Argentine food and drugs arriving at the United States.
Producers of
television channelA television channel is a physical or virtual channel over which a television station or television network is distributed. For example, in North America, "channel 2" refers to the broadcast or cable band of 54 to 60 MHz, with carrier frequencies of 55.25 MHz for NTSC analog video and 59.75 MHz...
s 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. Virtually all education-related TV programmes were canceled.
TourismTourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people who "travel to and stay in places outside their usual environment for more than twenty-four hours and not more than one consecutive year for leisure, business and other...
balance with
ChileChile, officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
inverted due to the lowered prices in Argentina.
The recovery
Eduardo Duhalde finally managed to stabilise the situation to a certain extent, and called for elections. On May 25, 2003 President
Néstor KirchnerNéstor Carlos Kirchner Ostoić was the President of Argentina from May 25, 2003 until December 10, 2007. A Justicialist, Kirchner was previously governor of the province of Santa Cruz....
took charge. Kirchner kept Duhalde's Minister of Economy,
Roberto LavagnaRoberto Lavagna is an Argentine economist and politician, and was the former Minister of Economy and Production of Argentina until 28 November 2005, when he was replaced with Felisa Miceli, president of Banco de la Nación Argentina...
, in his post. Lavagna, a respected economist with centrist views, showed a considerable aptitude at managing the crisis, with the help of
heterodoxHeterodoxy includes "any opinions or doctrines at variance with an official or orthodox position". As an adjective, heterodox is used to describe a subject as "characterized by departure from accepted beliefs or standards"...
measures.
The economic outlook was completely different from that of the 1990s; the devalued peso made Argentine exports cheap and competitive abroad, while discouraging imports. In addition, the high price of
soyThe soybean or soya bean is a species of legume native to East Asia. The plant is classed as an oilseed rather than a pulse. It is an annual plant that has been used in China for 5,000 years to primarily add nitrogen into the soil as part of crop rotation...
in the international market produced an injection of massive amounts of foreign currency (with
ChinaChina is a cultural region, an ancient civilization, and, depending on perspective, a national or multinational entity extending over a large area in East Asia....
becoming a major buyer of Argentina's soy products).
The government encouraged
import substitutionImport substitution industrialization is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products...
and accessible credit for businesses, staged an aggressive plan to improve
taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
collection, and set aside large amounts of money for social welfare, while controlling expenditure in other fields.
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
tourismTourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people who "travel to and stay in places outside their usual environment for more than twenty-four hours and not more than one consecutive year for leisure, business and other...
returned.
The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from revaluing further, which would ruin the tax collection scheme (largely based on imports taxes and royalties) and discourage further reindustrialisation. The central bank started buying dollars in the local market and stocking them as reserves. By December 2005, foreign currency reserves had reached $28 billion (they were greatly reduced by the anticipated payment of the full debt to the IMF in January 2006). The downside of this reserve accumulation strategy is that the dollars have to be bought with freshly-issued pesos, which may induce inflation. The central bank neutralises a part of this monetary emission by selling
TreasuryA treasury is any place where the currency or items of high monetary value are kept. The term was first used in Classical times to describe the votive buildings erected to house gifts to the gods, such as the Siphnian Treasury in Delphi or many similar buildings erected in Olympia, Greece by...
letters. In this way the exchange rate has been stabilised near a reference value of 3 pesos to the dollar.
The currency exchange issue is complicated by two mutually opposing factors: a sharp increase in imports since
2004-January:* 7 January: Roger Noriega, U.S. Sub-Secretary for the Western Hemisphere, criticizes Argentina's position on Cuba, and Minister of Foreign Affairs Rafael Bielsa says he feels affected and offended, starting a minor diplomatic crisis....
(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 destabilising the financial market.
Argentina's recovery suffered a minor setback in 2004 when rising industrial demand caused a short-lived
energy crisisThe Argentine energy crisis was a natural gas supply shortage experienced by Argentina in 2004. After the recession triggered by the economic crisis and ending in 2002, Argentina's energy demands grew quickly as industry recovered, but extraction and transportation of natural gas, a cheap and...
. The prospect of future energy shortages are not discounted.
Argentina has managed to return to
growthEconomic growth is a term used to indicate the increase of total GDP. It is often measured as the rate of change of gross domestic product . Economic growth refers only to the quantity of goods and services produced; it says nothing about the way in which they are produced...
with surprising strength; the GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007. Though average wages have increased 17% annually since 2002 (jumping 25% in the year to May 2008), consumer prices have partly accompanied this surge; though not comparable to the levels of former crises, the inflation rate was 12.5% in 2005, 10% in 2006 and is believed by private economists to have approached 15% in 2007 and to exceed 20% during 2008 (even if the Ministry of Economy refuses to acknowledge inflation greater than 10%). This has prompted the government to increase tariffs for exporters and to pressure retailers into one price truce after another in a bid to stabilize prices, so far with little effect.
While
unemploymentUnemployment occurs when a person is available to work and seeking work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed...
has been considerably reduced (it's been hovering around 8.5% since 2006), Argentina has so far failed to reach an equitable
distribution of incomeIn economics, the Lorenz curve is a graphical representation of the cumulative distribution function of a probability distribution; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values. It is often used to represent income distribution, where it shows...
(the wealthiest 10% of the population receives 31 times more income than the poorest 10%). This disparity, nevertheless, compares quite favorably to levels seen in most of Latin America, Asia and Africa.
Worker-owned cooperatives and self-management
During the economic collapse, many business owners and foreign investors drew all of their money out of the Argentine economy and sent it overseas. As a result, many small and medium enterprises closed due to lack of capital, thereby exacerbating unemployment. Many workers at these enterprises, faced with a sudden loss of employment and no source of income, decided to reopen businesses on their own, without the presence of the owners and their capital, as self-managed
cooperativeA cooperative is defined by the International Co-operative Alliance's Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and...
s.
Worker managed cooperativeA worker cooperative is a cooperative owned and democratically controlled by its worker-owners. This control may be exercised in a number of ways. In 'pure' forms of worker co-operative, all shares are held by the workforce with no outside or consumer owners, and each member has one voting share...
businesses range from ceramics factory Zanon (
FaSinPatFaSinPat, formerly known as Zanon, is a worker-controlled ceramic tile factory in the southern Argentine province of Neuquén, and one of the most prominent in the recovered factory movement of Argentina...
), to the four-star
Hotel BauenThe Hotel Bauen is a recuperated business located at Callao 360 in Buenos Aires run collectively by its workers, serving both as a hotel and as a free meeting place for Argentine leftist and workers' groups...
, to suit factory Brukman, to printing press Chilavert, and many others. As of 2007, there were about 10,000 people employed in self-managed businesses, representing a significant source of employment and economic growth. In some cases, the former owners sent police to kick workers out of the workplaces; this was sometimes successful but in other cases workers defended occupied workplaces against the state, the police, and the bosses.
Some businesses have now been legally purchased by the workers for nominal fees, others remain 'occupied' by workers who have no legal standing with the state (and in some cases reject negotiation with the state on the grounds that working productively is its own justification). The Argentine government is considering a Law of
ExpropriationExpropriation is the confiscation of private property with the express purpose of establishing social equality.Unlike eminent domain, expropriation takes place beyond the common law legal systems and refers to socially-motivated confiscations of any property rather than to taking away the real estate...
that would transfer some occupied businesses to their worker-managers.
Effects on wealth distribution
Although GDP has grown consistently and quickly since 2003, it was only in late 2004 that it reached the levels of 1998 (the last year before the recession). Other macroeconomic indicators have followed suit. A study by Equis, an independent counseling organisation, found out that two measures of
economic inequalityEconomic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and...
, the
Gini coefficientThe Gini coefficient is a measure of statistical dispersion developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variability and Mutability" . It is commonly used as a measure of inequality of income or wealth...
and the wealth gap between the 10% poorest and the 10% richest among the population, grew continuously since 2001, and decreased for the first time in March 2005.
Poverty in Argentina
Date of
measurement | Extreme
poverty | Under
poverty
line |
|---|
| May 2001 |
11.6% |
35.9% |
| Oct 2001 |
13.6% |
38.3% |
| May 2002 |
24.8% |
53.0% |
| Oct 2002 |
27.5% |
57.5% |
| May 2003 |
26.3% |
54.7% |
| 2nd sem 2003 |
20.5% |
47.8% |
| 1st sem 2004 |
17.0% |
44.3% |
| 2nd sem 2004 |
15.0% |
40.2% |
| 1st sem 2005 |
13.6% |
38.5% |
| 2nd sem 2005 |
12.2% |
33.8% |
| 1st sem 2006 |
11.2% |
31.4% |
| 2nd sem 2006 |
8.7% |
26.4% |
| 2nd sem 2007 |
5.9% |
20.6% |
| 1st sem 2008 |
5.1% |
17.8% |
| 2nd sem 2008 |
4.4% |
15.3% |
|
The table on the left shows statistics of povertyPoverty is the condition of lacking basic human needs such as nutrition, clean water, health care, clothing, and shelter because of the inability to afford them. This is also referred to as absolute poverty or destitution...
in ArgentinaArgentina, officially the Argentine Republic , is the second largest country in South America, constituted as a federation of 23 provinces and an autonomous city, Buenos Aires. It is the eighth largest country in the world by land area and the largest among Spanish-speaking nations, though Mexico,...
, in percent of the population. The first column shows the date of the measurement (note that the method and time changed in 2003; poverty is now measured each semester). Extreme poverty is here defined as not having enough money to eat properly. The poverty line is set higher: it is the minimum income needed for basic needs including food, clothing, shelter, and studies. |
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.
The Argentine government kept a firm stance, and finally got a deal in 2005 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. In 2008, President Cristina Fernandez de Kirchner announced she was studying a reopening of the 2005 swap to gain adhesion from the remaining 24% of the so-called "holdouts," and thereby fully exit the default with private investors.
Criticism of the IMF
The
International Monetary FundThe International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments...
suffered no discounts in its part of the Argentine debt. Some payments were refinanced or postponed on agreement. However, the authorities of the IMF at times expressed harsh criticism of the discounts and actively lobbied for the private creditors.
In a speech before the
United NationsThe United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achieving of world peace...
General AssemblyFor two articles dealing with membership in the General Assembly, see:*General Assembly members*General Assembly observersThe United Nations General Assembly is one of the five principal organs of the United Nations and the only one in which all member nations have equal representation...
on September 21, 2004, President Kirchner said that "An urgent, tough, and structural redesign of the International Monetary Fund is needed, to prevent crises and help in [providing] solutions". Implicitly referencing the fact that the intent of the original
Bretton Woods systemThe Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
was to encourage economic development, Kirchner warned that the IMF today must "change that direction, which took it from being a lender for development to a creditor demanding privileges".
During the weekend of October 1–2, 2004, at the annual meeting of the
International Monetary FundThe International Monetary Fund is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments...
/
World BankThe World Bank is an international financial institution that provides leveraged loans to poorer countries for capital programs, tied to neoliberal market restructurings...
, leaders of the IMF, the
European UnionThe European Union is an economic and political union of 27 Member States, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community...
, the Group of Seven industrialised nations, and the
Institute of International FinanceThe Institute of International Finance, Inc. is the world's only global association of financial institutions. It was created by 38 banks of leading industrialised countries in 1983 in response to the international debt crisis of the early 1980s...
(IIF), warned President Kirchner that Argentina had to come to an immediate debt-restructuring agreement with the speculative "
vulture fundA vulture fund is a private equity or hedge fund that invests in debt issued by an entity that is considered to be very weak or dying. The name is a metaphor comparing these investors to vultures patiently circling, waiting to pick over the remains of a rapidly weakening company or, in the case of...
s", increase its primary budget surplus to pay more debt, and impose "structural reforms" to prove to the world financial community that it deserved loans and investment.
In 2005, as a large and consistently growing fiscal surplus made it possible, Argentina shifted to a policy of "disindebtment" towards the IMF: paying the IMF in schedule, with no negotiation whenever possible, with the intention of gaining independence from it. On December 15, 2005, following a similar action by Brazil, President Kirchner suddenly announced that Argentina would pay the whole debt to the IMF. The debt payments, totaling 9,810 million USD, were previously scheduled as installments until 2008. Argentina paid it with the central bank's foreign currency reserves.
In a June 2006 report, a group of independent experts hired by the IMF to revise the work of its Independent Evaluation Office (IEO) stated that the assessment of the Argentine case suffered from informative manipulation and lack of collaboration on the part of the IMF; the IEO is claimed to have unduly softened its conclusions to avoid criticizing the IMF's board of directors.
Allegations of use of un-published Clearstream accounts
Further information: ClearstreamClearstream Banking S.A. is the custody and settlement division of Deutsche Börse, based in Luxembourg.It was created in January 2000 through the merger of Cedel International and Deutsche Börse Clearing, part of the Deutsche Börse Group, which owns the Frankfurt Stock Exchange. Cedel, established...
As a
clearing houseA clearing house is a financial services company that provides clearing and settlement services for financial transactions, usually on a futures exchange, and often acts as central counterparty...
, Clearstream has a "dominant position" in Europe, according to the
European CommissionThe European Commission acts as an executive of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union.The Commission operates in the method of cabinet government, with 27...
. Funds composing the private and public Argentine debt have transited through Clearstream, which is inevitable because of its quasi-
monopolyIn economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it...
situation. However, according to "Revelation$" (2001), written by reporter
Denis RobertDenis Robert is a French freelance journalist and a writer. Robert formerly worked for Libération newspaper for 12 years.
...
and
Ernest BackesErnest Backes was #3 of clearing chamber Clearstream , in charge of relations with clients, and was fired in May 1983...
, some Argentine funds flowed through an illegal system of non-published accounts used by Clearstream.
CitibankCitibank is a major international bank, founded in 1812 as the City Bank of New York, later First National City Bank of New York. Citibank is now the consumer banking arm of financial services giant Citigroup, one of the largest companies in the world...
in particular, which held a large part of the private Argentine fund, had numerous unpublished bank accounts in Clearstream. This illegal system of non-published accounts makes of Clearstream, according to several judges as
Eva JolyEva Joly is a Norwegian-born French magistrate. Born in Grünerløkka, Oslo, she moved to Paris at 18 to work as an au pair. There, against the will of the parents, she married the son of the family, Pascal Joly .Working as a secretary, she took her legal education at night school...
and
Renaud van RuymbekeRenaud van Ruymbeke is a French investigative magistrate, well known for specializing in political and financial corruption cases, who investigated on the French-Taiwan frigates Affair, which has been related to the Clearstream scandal, and on the Urba affair.- Bibliography :*Renaud van Ruymbeke,...
, European members of parliament (MPs) such as
Harlem DésirHarlem Désir is a French politician and Member of the European Parliament for the Île-de-France. He is a member of the Socialist Party, part of the Party of European Socialists....
,
Glyn FordGlyn Ford was a member of the European Parliament for South West England for the Labour Party and Gibraltar Socialist Labour Party...
and
Francis WurtzFrancis Wurtz is a French Member of the European Parliament. Elected in the Île-de-France constituency on the French Communist Party ticket, he sits with the European United Left - Nordic Green Left group, and is its current President. He was nominated by EUL/NGL as their candidate for President...
, and Attac NGO, a major actor of the
underground economyThe underground economy or black market is a market where all commerce is conducted without regard to taxation, law or regulations of trade. The term is also often known as the underdog, shadow economy, black economy, parallel economy or phantom trades.In modern societies the underground economy...
, through which global tax evasion and
money launderingMoney laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source. It is a crime in many jurisdictions with varying definitions...
may be investigated. Henceforth, Clearstream is a major key in the understanding of the evaporation of the Argentine funds that led to the economic crisis.
Endnotes
Films
- Memoria del Saqueo, by Pino Solanas
Fernando Ezequiel 'Pino' Solanas is an Argentine film director, screenwriter and politician....
- Un Día de suerte
Un día de suerte is an Argentine and Italian film directed by Sandra Gugliotta, her first feature film, and written by Gugliotta and Marcelo Schapces. In Argentina it's also known as Lo que buscas es amor...
- The Take
- Nueve Reinas
Nine Queens is an Argentine crime drama film written and directed by Fabián Bielinsky. The picture features Gastón Pauls, Ricardo Darín, Leticia Brédice, and Tomás Fonzi, among others.The film was nominated for 28 awards and won 21 of them....
- Documentary 52': Que Justice soit Faite
- "i" Indymedia, Argentina, and the Questions of Communication
External links
Non-Fiction, Reference Books
- Jutta Maute: Hyperinflation, Currency Board, and Bust: The Case of Argentina, (Hohenheimer Volkswirtschaftliche Schriften) (Paperback), Peter Lang Publishing; 1st edition (September 2006), ISBN 0820487082, ISBN 978-0820487083