1980 to 1995

The 70s and 80s were the time which witnessed the great disturbance in the political and economic
conditions of Argentina. After the death of President of Argentina, Juan Péron in 1974, militant
groups rebelled and turned against the government. The government lost against the militants and
was overthrown in 1976 led by General Jorge Videla. In 1976, under the militant government,
Argentina changed its policy and became more market oriented. Exports were supported by the
government and all the protections against external competition were removed. Results, small
domestic industries couldn’t survive, and many firms went bankrupt.

After 1977, as the demand (domestic consumption) increased, inflation rate increased to 5000%.
To control the current situation, fiscal policies like cutting down the wages, deregulating prices
and reduction in subsidies were implemented. The policies worked and reduced the inflation rate
to 100%. Also, new policy included privatization of banks, and removal of restrictions which
resulted in growth of the ratio of credits to GDP. Deregulations made the banks more active and
the granting of credits became less cautious. Many international banks also open their branches in
the country and growth of the sector also attracted new entrepreneurs. There was a jump in imports
of durable consumption goods and weapons, but in the public consumption large part of the foreign
loans was used. During 1977, the savings got decreased and GDP came to 18% direct from 33%.
To compensate the fall in savings and to avoid fall in investments, Argentina started borrowing
from abroad. With decreasing savings and GDP, now Argentina was facing the problem of external
debt also. In 1978, Argentine government launched “Tablita” plan to decrease the inflation. Loans
from abroad were taken to invest in Argentine assets which increased the large capital inflow.

Debt
80
70
60
50
40
30
20
10
0
1980198119821983198419851986198719881989199019911992199319941995
In starting of 1980, the capital inflow increased the private external debt. Due to international
recession, unemployment started rising in Argentina. Export revenues reduced and import
expenses increased and the trade balance was negative. Hand in hand, increasing real rates and
dollars increased foreign debt. In 1980, the overvaluation of Peso took the financial market down.
The total external debt on Argentina increased from US$ 7 billion to US$ 35 billion in 1981. In
1981 when the general Leopoldo Galtieri took charge, the government budget deficit increased
heavily due to the large external debt. Again, inflation rate started rising. After the massive losses
of foreign exchange reserves the government resorted to huge currency devaluation. Government
lost the trust and new general Reynaldo Bignone took the charge in July, 1982 and led the
government until the next elections in 1983. In 1982, IMF loan was sanctioned to take Argentina
out of the financial crisis. This time, new economic policies were made with more restrictions and
higher interest rate. But the problems were not yet finished and the growth started falling down
even more deeply.

Continuous increase in inflation led to the situation of hyperinflation in the country which forced
the current president to resign and new president, Peronist Carlos Ménem took the charge in 1989.
Menem started reforming the policies which are known as “Convertibility” plan designed by the
economist, Domingo Cavallo, and legislated in April 1991. The new policies stabilize the
economic situation in the country. According to the new policy, exchange rate was fixed, extensive
privatization and trade liberalizations were done. Reforms resulted in reduced rate of inflation and
growth in GDP. The program also included, reduction in public expending, reduction in
employment in state industries, increased public services and privatization of banks. Next, a
growth in lending took place. After the Mexico’s tequila crisis, investors came back to the country
with high capital which collapsed the financial system again. At that time, IMF and World bank
helped the country and saved the investors’ confidence. The 1995 crisis made the authority realized
that the financial system needs to be changed. Reforms were done and till 1999, more than half of
the banking sectors were owned by the foreigners. In 1990s, banking sectors were considered as
the stable.