Argentina’s Economic and Financial Crisis

The Argentine economic crisis is a crisis that occurred in the Argentine economy in the late 1990s and
early 2000s. From a macroeconomic point of view, the crisis period of transition affected real GDP in
1999 and ended in 2002 with the return of GDP growth, but the cause of the collapse of the Argentine
economy and their impact on the economy is still evident. Some crises date back only to 2001–2002[1].

The crisis culminated in the persecutions of December 2001, during which the country was hit by a wave
of looting. At the same time, Argentina announced the largest default in history ($80 billion)

Causes
One of the reasons for the crisis is the monetarist reforms of Domingo Cavallo, during which state
property was privatized and the national currency was pegged to the US dollar[3]. In addition, special
conditions were created for foreign investors in Argentina - they were completely exempt from taxes for
5-25 years, as a result of which, according to some estimates, multi-billion dollar foreign investments
were accompanied by a loss of at least $280 billion in profits over a decade.

A strict peg to an expensive currency (the dollar) made Argentine goods uncompetitive, which
subsequently had a negative impact on industrial development. In addition, due to the strict peg, the
Central Bank of Argentina deprived itself of the opportunity to really influence the situation

In the 1990s, Argentina began to pay off its previous debts with new debts at higher interest rates. At the
same time, loans were taken to cover the budget deficit. During the presidencies of Carlos Menem and
Fernando de la Rúa, the national debt grew to $132 billion, which subsequently led to significant costs of
servicing it. Shortly before the default, the IMF refused to provide new loans to Argentina. In this regard,
the IMF and the United States are accused of inconsistency in relation to Argentina, since the IMF for a
long time insisted on a tight fiscal policy and issued large loans to Argentina to cover the deficit, but at
the end of 2001 changed its position.

Other reasons have been cited that contributed to the more severe consequences of the crisis:

-The imperfection of the tax system, which made it possible to evade taxes (VAT evasion was up to 40%).

-Large-scale corruption.

-Debt of regions to the central government.

-High annual current debt payments—$5 billion per year.

Consequences
In the short term, Argentina's GDP level fell sharply, the purchasing power of the population decreased
significantly, and the poverty level increased significantly. According to the World Bank, the population
below the poverty line in Argentina rose from 28.9% in 2000 to 35.4% in 2001 and peaked in 2002
(54.3%), after which it began to decline and reached 9. 9% in 2010. In 2001, the ratio of external public
debt to GDP was 56.9% of GDP, but due to default and the fall in GDP, this figure rose to 153.2% by 2002,
after which it began to decline by 20-40% per year. Since 2001, unemployment in Argentina has been
declining (18.3% in 2001, 17.9% in 2002, 16.1% in 2003; 8.6% in 2009).

To somewhat reduce the effect of the crisis on the population, the Argentine government introduced a
differentiated approach to the reimbursement of deposits, as a result of which banks suffered losses of
6-10 billion dollars. The government also abandoned commitments to a number of infrastructure
projects while prohibiting increases in utility tariffs. Price control has become one of the most important
points of the anti-crisis program.