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ARJUN KANDASWAMY

DR. JERRY DREW


COMPARATIVE CAPITALIST SYSTEMS
11/26/13

The Causes of Argentinas
2002 Fiscal Crisis
Argentine Economy in the 1990s
Commodity-based
Net exporter of oil
Agricultural products
Susceptible to market shocks

Implemented liberal market
reforms
Privatized oil
Deficit spending






Thesis
Argentinas fixed exchange rate and high
external debt led to a large current account
deficit and international uncertainty over the
solvency of the peso.

This culminated in a debt default, elimination of
the fixed exchange rate, and economic
contraction.
Fixed Exchange Rate Overvalues the Peso




1997-2001: Current account deficit grows
by $30 billion
Argentine exports are more expensive
Grossly overvalued peso
1991: Minister of Economy Domingo
Cavallo pegs peso to dollar at 1:1
Argentinas Current Account Deficit 1992-2003

External Debt Quickly Accumulates
Interest payments exceeds budget
surplus by 2% for 10 years

1993-1996: Public debt increases
6x

Contractionary fiscal policy
exacerbates low investor
confidence

2002: $156 billion in debt,
Argentina defaults


Argentinas External Debt in 2001

Argentinas Country and Currency Risk

Effects on the Argentine Economy
Economy contracts by 28%

Unemployment reaches 20%

Fixed exchange rate is abandoned

Gini coefficient grew from 2001 to 2005
Summary of the Crisis
High external
debt and fixed
exchange rate
Negative net
exports and
investor
confidence
Debt default
and economic
contraction

Questions?

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