The South American economic crisis is the economic disturbances which have developed in 2002 in the
South America
South America is a continent entirely in the Western Hemisphere and mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere at the northern tip of the continent. It can also be described as the southe ...
n countries of
Argentina
Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
,
Brazil
Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
and
Uruguay
Uruguay (; ), officially the Oriental Republic of Uruguay ( es, República Oriental del Uruguay), is a country in South America. It shares borders with Argentina to its west and southwest and Brazil to its north and northeast; while bordering ...
.
The Argentinian economy was suffering from sustained
deficit spending
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
and an extremely high debt overhang, and one of its attempted reforms included fixing its exchange rates to the US dollar. When Brazil, as its largest neighbor and trading partner, devalued its own currency in 1999, the Argentinian peg to the US dollar prevented it from matching any of that devaluation, leaving its tradeable goods to be less competitive with Brazilian exports.
Along with a trade imbalance and balance of payment problem, the need for credit to finance its budget deficits made Argentina's economy vulnerable to economic crisis and instability. In 1999, the economy of Argentina shrank by 3.4%. GDP continued to decline: 0.8% in 2000, 4.4% in 2001, and 10.9% in 2002. One year before, in Brazil, low water level in hydroelectric plants, combined with a lack of long-term investment in
energy security
Energy security is the association between national security and the availability of natural resources for energy consumption. Access to (relatively) cheap energy has become essential to the functioning of modern economies. However, the uneven ...
, forced the country to do an energy rationing program, which negatively affected the national economy.
See also
*
1998–2002 Argentine great depression
The Argentine Great Depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed the fifteen years stagnation and a brief period of free-market reforms. ...
*
2002 Uruguay banking crisis The Uruguay banking crisis was a major banking crisis that hit Uruguay in July 2002. In this, a massive run on banks by depositors (most of them from neighboring Argentina) caused the government to freeze banking operations. The crisis was caused b ...
*
Vulture fund
A vulture fund is a hedge fund, private-equity fund or distressed debt fund, that invests in debt considered to be very weak or in default, known as distressed securities. Investors in the fund profit by buying debt at a discounted price on a ...
*
Latin American debt crisis
The Latin American debt crisis ( es, Crisis de la deuda latinoamericana; pt, Crise da dívida latino-americana) was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as ''La Décad ...
External links
I.M.F. Loan to Brazil Also Shields U.S. Interests ''The New York Times'', August 9, 2002
''The New York Times'', October 6, 2002
A Look at Argentina’s 2001 Economic Rebellion and the Social Movements that Led It- video report by ''
Democracy Now!
''Democracy Now!'' is an hour-long American TV, radio, and Internet news program hosted by journalists Amy Goodman (who also acts as the show's executive producer), Juan González, and Nermeen Shaikh. The show, which airs live each weekday at ...
''
Economy of South America
2002 in economics
2002 in South America
2002 in Argentina
2002 in Brazil
2002 in Uruguay
Financial crises
{{Econ-hist-stub