The Argentine Great Depression was an

economic depression An economic depression is a period of carried long-term economical downturn that is result of lowered economic activity in one major or more national economies. Economic depression maybe related to one specific country were there is some economic ...

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 List of South American countries by area, second-largest ...

, 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. The depression, which began after the Russian and Brazilian financial crises, caused widespread unemployment,

riots A riot is a form of civil disorder commonly characterized by a group lashing out in a violent public disturbance against authority, property, or people. Riots typically involve destruction of property, public or private. The property targeted ...

, the fall of the government, a default on the country's foreign debt, the rise of alternative currencies and the end of the

peso The peso is the monetary unit of several countries in the Americas, and the Philippines. Originating in the Spanish Empire, the word translates to "weight". In most countries the peso uses the same sign, "$", as many currencies named " doll ...

fixed exchange rate A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another ...

to the

US dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...

. The economy shrank by 28 percent from 1998 to 2002. In terms of income, over 50 percent of Argentines lived below the official

poverty line The poverty threshold, poverty limit, poverty line or breadline is the minimum level of income deemed adequate in a particular country. The poverty line is usually calculated by estimating the total cost of one year's worth of necessities for ...

and 25 percent were

indigent Poverty is the state of having few material possessions or little

income

(their basic needs were unmet); seven out of ten Argentine children were poor at the depth of the crisis in 2002. By the first half of 2003, however, GDP growth had returned, surprising economists and the business media, and the economy grew by an average of 9% for five years. Argentina's GDP exceeded pre-crisis levels by 2005, and Argentine debt restructuring that year resulted in resumed payments on most of its defaulted bonds; a second debt restructuring in 2010 brought the percentage of bonds out of default to 93%, though holdout lawsuits led by

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 ...

s remained ongoing. Bondholders who participated in the restructuring have been paid punctually and have seen the value of their bonds rise. Argentina repaid its

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...

loans in full in 2006, but had a long dispute with the 7% of bond-holders left. In April 2016 Argentina came out of the default when the new government decided to repay the country's debt, paying the full amount to the vulture/hedge funds.

Origins

Argentina's many years of

military dictatorship A military dictatorship is a dictatorship in which the military exerts complete or substantial control over political authority, and the dictator is often a high-ranked military officer. The reverse situation is to have civilian control of the ...

(alternating with weak, short-lived democratic governments) had already caused significant economic problems prior to the 2001 crisis, particularly during the self-styled

National Reorganization Process The National Reorganization Process (Spanish: ''Proceso de Reorganización Nacional'', often simply ''el Proceso'', "the Process") was the military dictatorship that ruled Argentina from 1976 to 1983, in which it was supported by the United St ...

in power from 1976 to 1983. A right-wing executive, José Alfredo Martínez de Hoz, was appointed Economy Minister at the outset of the dictatorship, and a

neoliberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...

economic platform centered around anti-labor,

monetarist Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on natio ...

policies of financial liberalization was introduced. Budget deficits jumped to 15% of GDP as the country went into debt for the state takeover of over $15 billion in private debts as well as unfinished projects, higher defense spending, and the

Falklands War The Falklands War ( es, link=no, Guerra de las Malvinas) was a ten-week undeclared war between Argentina and the United Kingdom in 1982 over two British dependent territories in the South Atlantic: the Falkland Islands and its territorial ...

. By the end of the military government in 1983, the foreign debt had ballooned from $8 billion to $45 billion, interest charges alone exceeded trade surpluses, industrial production had fallen by 20%, real wages had lost 36% of their purchasing power, and unemployment, calculated at 18% (though official figures claimed 5%), was at its highest point since the 1929

Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

. Democracy was restored in 1983 with the election of President Raúl Alfonsín. The new government intended to stabilize the economy and in 1985 introduced

austerity Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spend ...

measures and a new currency, the Argentine austral, the first of its kind without ''peso'' in its name. Fresh loans were required to service the $5 billion in annual interest charges, however, and when commodity prices collapsed in 1986, the state became unable to service this debt. During the Alfonsin administration, unemployment did not substantially increase, but real wages fell by almost half to the lowest level in fifty years. Prices for state-run utilities, telephone service, and gas increased substantially. Confidence in the plan, however, collapsed in late 1987, and inflation, which had already averaged 10% per month (220% a year) from 1975 to 1988, spiraled out of control. Inflation reached 200% for the month in July 1989, peaking at 5000% for the year. Amid

, Alfonsín resigned five months before the end of his term;

Carlos Menem Carlos Saúl Menem (2 July 1930 – 14 February 2021) was an Argentine lawyer and politician who served as the President of Argentina from 1989 to 1999. Ideologically, he identified as a Peronist and supported economically liberal policies. He ...

took office in July.

1990s

After a second bout of

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

, Domingo Cavallo was appointed Minister of the Economy in January 1991. On 1 April, he fixed the value of the austral at 10,000 per

. Australs could be freely converted to dollars at banks. The

Central Bank of Argentina The Central Bank of the Argentine Republic ( es, Banco Central de la República Argentina, BCRA) is the central bank of Argentina, being an autarchic entity. Article 3 of the Organic Charter lists the objectives of this Institution: “The bank ...

had to keep its US dollar

foreign-exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...

at the same level as the cash in circulation. The initial aim of such measures was to ensure the acceptance of domestic currency because after the 1989 and 1990 hyperinflation, Argentines had started to demand payment in US dollars. This regime was later modified by a law (''Ley de Convertibilidad'') that restored the

Argentine peso The peso (established as the ''peso convertible'') is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using peso or dollar currencies. It is subdivided into 100 ''centavos''. Its ISO 4 ...

as the national currency. The convertibility law reduced inflation sharply, preserving the value of the currency. That raised the

quality of life Quality of life (QOL) is defined by the World Health Organization as "an individual's perception of their position in life in the context of the culture and value systems in which they live and in relation to their goals, expectations, standards ...

for many citizens, who could again afford to travel abroad, buy imported goods or ask for credit in dollars at traditional

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...

rates. The fixed exchange rate reduced the cost of imports, which produced a flight of dollars from the country and a massive loss of industrial infrastructure and employment in industry. Argentina, however, still had external public debt that it needed to roll over. Government spending remained too high, and corruption was rampant. Argentina's public debt grew enormously during the 1990s without showing that it could service the debt. The IMF kept lending money to Argentina and extending its payment schedules. Massive

tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...

and

money laundering Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdicti ...

contributed to the movement of funds toward

offshore banks An offshore bank is a bank regulated under international banking license (often called offshore license), which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and ...

. A congressional committee started investigations in 2001 over accusations that Central Bank Governor Pedro Pou, a prominent advocate of

dollarization Currency substitution is the use of a foreign currency in parallel to or instead of a domestic currency. The process is also known as dollarization or euroization when the foreign currency is the dollar or the euro, respectively. Currency subs ...

, and members of the board of directors had overlooked money laundering within Argentina's financial system. Clearstream was accused of being instrumental in this process. Other Latin American countries, including

Mexico Mexico (Spanish language, Spanish: México), officially the United Mexican States, is a List of sovereign states, country in the southern portion of North America. It is borders of Mexico, bordered to the north by the United States; to the so ...

and

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 ...

(both important trade partners for Argentina) faced economic crises of their own, leading to mistrust of the regional economy. The influx of foreign currency provided by the

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

of state companies had ended. After 1999, Argentine exports were harmed by the

devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...

of the

Brazilian real The Brazilian real ( pl. '; sign: R$; code: BRL) is the official currency of Brazil. It is subdivided into 100 centavos. The Central Bank of Brazil is the central bank and the issuing authority. The real replaced the cruzeiro real in 1994 ...

against the dollar. A considerable international revaluation of the dollar directly weakened the peso relative to Argentina's trading partners: Brazil (30% of total trade flows) and the

eurozone The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro (€) as their primary currency and sole legal tender, and have thus fully implemented EMU pol ...

(23% of total trade flows). After having grown by over 50% from 1990 to 1998, Argentina's GDP declined by 3% in 1999 and the country entered what became a three-year-long

recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...

. President

Fernando de la Rúa Fernando de la Rúa (15 September 19379 July 2019) was an Argentine politician and a member of the Radical Civic Union (UCR) political party who served as President of Argentina from 10 December 1999 to 21 December 2001. De la Rúa was born in ...

was elected in 1999 on a reform platform that nevertheless sought to maintain the peso's parity with the dollar. He inherited a country with high unemployment (15%), lingering recession, and continued high levels of borrowing. In 1999,

economic stability Economic stability is the absence of excessive fluctuations in the macroeconomy. An economy with fairly constant output growth and low and stable inflation would be considered economically stable. An economy with frequent large recessions, a pron ...

became

economic stagnation Economic stagnation is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth), usually accompanied by high unemployment. Under some definitions, "slow" means significantly slower than potential growth as e ...

(even deflation at times), and the economic measures taken did nothing to avert it. The government continued its predecessor's economic policies. Devaluing the peso by abandoning the exchange peg was considered political suicide and a recipe for economic disaster. By the end of the century, complementary currencies had emerged. While the

provinces of Argentina Argentina is subdivided into twenty-three federated states called provinces ( es, provincias, singular ''provincia'') and one called the autonomous city (''ciudad autónoma'') of Buenos Aires, which is the federal capital of the republic ( e ...

had always issued complementary currency in the form of bonds and

drafts Draft, The Draft, or Draught may refer to: Watercraft dimensions * Draft (hull), the distance from waterline to keel of a vessel * Draft (sail), degree of curvature in a sail * Air draft, distance from waterline to the highest point on a vesse ...

to manage shortages of cash, the scale of such borrowing reached unprecedented levels during this period. They became called "quasi-currencies", the strongest of them being

Buenos Aires Buenos Aires ( or ; ), officially the Autonomous City of Buenos Aires ( es, link=no, Ciudad Autónoma de Buenos Aires), is the capital and primate city of Argentina. The city is located on the western shore of the Río de la Plata, on South ...

's Patacón. The national government issued its own quasi-currency, the LECOP. In a 2001 interview, journalist Peter Katel identified three factors that converged "the worst possible time" that made the Argentine economy unravel: # The fixed exchange rate between

and the US dollar decided by Cavallo. # The large amounts of borrowing by Menem. # An increase in debt from reduced tax revenues.

Currency

The 2002 crisis of the Argentine peso, however, shows that even a currency board arrangement cannot be completely safe from a possible collapse. When the peso was first linked to the U.S. Dollar at parity in February 1991 under the Convertibility Law, initial economic effects were quite positive: Argentina's chronic inflation was curtailed dramatically and foreign investment began to pour in, leading to an economic boom. Over time, however, the peso appreciated against the majority of currencies as the U.S. Dollar became increasingly stronger in the second half of the 1990s. A strong peso hurt exports from Argentina and caused a protracted economic downturn that eventually led to the abandonment of the peso-dollar parity in 2002. This change, in turn, caused severe economic and political distress in the country. The unemployment rate rose above 20 percent and inflation reached a monthly rate of about 20 percent in April 2002. In contrast, Hong Kong was able to successfully defend its currency board arrangement during the Asian financial crisis, a major stress test for the arrangement. Although there is no clear consensus on the causes of the Argentine crisis, there are at least three factors that are related to the collapse of the currency board system and ensuing economic crisis: #The lack of fiscal discipline #Labor market inflexibility #Contagion from the financial crises in Russia and Brazil. While the currency crisis is over, the debt problem has not been completely resolved. The government of Argentina ceased all debt payments in December 2001 in the wake of persistent recession and rising social and political unrest. In 2004, the Argentine government made a 'final' offer amounting to a 75 percent reduction in the net present value of the debt. Foreign bondholders rejected this offer and asked for an improved offer. In early 2005, bondholders finally agreed to the restructuring, under which they took a cut of about 70 percent on the value of their bond holdings.

Rates, riots, resignations and default

When a short boom in the early 1990s of portfolio investment from abroad ended in 1995, Argentina became reliant on the IMF to provide the country with low-interest access to credit and to guide its economic reforms. When the recession began in 1999, the national deficit widened to 2.5% of GDP, and its external debt surpassed 50% of GDP. Seeing the levels as excessive, the IMF advised the government to balance its budget by implementing austerity measures to sustain investor confidence. The De la Rúa administration implemented $1.4 billion in cuts in its first weeks in office in late 1999. In June 2000, with unemployment at 14% and projections of 3.5% GDP for the year, austerity was furthered by $938 million in spending cuts and $2 billion in tax increases. GDP growth projections proved to be overly optimistic (instead of growing, real GDP shrank 0.8%), and lagging tax receipts prompted the government to freeze spending and cut retirement benefits again. In early November,

Standard & Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is con ...

placed Argentina on a credit watch, and a treasury bill auction required paying 16% interest (up from 9% in July, the second-highest rate of any country in South America at the time. Rising bond yields forced the country to turn to major international lenders, such as the IMF, the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

, and the

US Treasury The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and ...

, which would lend to the government below market rates if it complied with conditions. Several more rounds of belt-tightening followed. José Luis Machinea resigned in March 2001. He was replaced with

Ricardo López Murphy Ricardo Hipólito López Murphy (born 10 August 1951) is an Argentine economist, academic and politician. He served as Minister of Defense and Minister of Economy during the presidency of Fernando de la Rúa. His time at the helm of the economy ...

, who lasted less than three weeks in office before being replaced with Cavallo. Standard and Poor's cut the credit rating of the country's bonds to B− in July 2001. Cavallo reacted by offering bondholders a swap: longer-term, higher-interest bonds would be exchanged for bonds due in 2010. The "megaswap" (''megacanje''), as Cavallo referred to it, was accepted by most bondholders, and it delayed up to $30 billion in payments that would have been due by 2005; but it also added $38 billion in interest payments in the out years; of the $82 billion in bonds that eventually had to be restructured (triggering a wave of holdout lawsuits), 60% were issued during the 2001 megaswap. Cavallo also attempted to curb the budget crisis by instituting an unpopular across-the-board pay cut in July of up to 13% to all civil servants and an equivalent cut to government pension benefits, De la Rúa's seventh austerity round—triggering nationwide strikes, and from August, it paid salaries of the highest-paid employees in IOUs instead of money. That further depressed the weakened economy, the unemployment rate rose to 16.4% in August 2001 up from a 14.7% a month earlier, and it reached 20% by December. Public discontent with the economic conditions was expressed in the nationwide

election An election is a formal group decision-making process by which a population chooses an individual or multiple individuals to hold public office. Elections have been the usual mechanism by which modern representative democracy has operat ...

. De la Rúa's alliance lost its majority in both chambers of Congress. Over 20% of voters chose to give blank or defaced ballots rather than indicate support of any candidate. The crisis intensified when, on 5 December 2001, the IMF refused to release a US$1.3 billion tranche of its loan, citing the failure of the Argentine government to reach its budget deficit targets, and it demanded budget cuts, 10% of the federal budget. On 4 December, Argentine bond yields stood at 34% over U.S. treasury bonds, and, by 11 December, the spread jumped to 42%. By the end of November 2001, people began withdrawing large sums of dollars from their

bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the terms and conditions for each type of ...

s, turning pesos into dollars, and sending them abroad, which caused a

bank run A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...

. On 2 December, the government enacted measures, informally known as the '' corralito'', which allowed for only minor sums of cash to be withdrawn, initially $250 a week.

December 2001 riots and political turmoil

The freeze enraged many Argentines who took to the streets of important cities, especially Buenos Aires. They engaged in protests that became known as '' cacerolazo'' (banging pots and pans). The ''cacerolazos'' began as noisy

demonstrations Demonstration may refer to: * Demonstration (acting), part of the Brechtian approach to acting * Demonstration (military), an attack or show of force on a front where a decision is not sought * Demonstration (political), a political rally or prote ...

but soon included property destruction, often directed at banks, foreign-owned privatized companies, and, especially, big American and European companies. De la Rua renuncia

Confrontations between the police and citizens became common, and fires were set on Buenos Aires avenues. De la Rúa declared a

state of emergency A state of emergency is a situation in which a government is empowered to be able to put through policies that it would normally not be permitted to do, for the safety and protection of its citizens. A government can declare such a state du ...

, but the situation worsened, precipitating the violent protests of 20 and 21 December 2001 in

Plaza de Mayo The Plaza de Mayo (; en, May Square) is a city square and main foundational site of Buenos Aires, Argentina. It was formed in 1884 after the demolition of the Recova building, unifying the city's Plaza Mayor and Plaza de Armas, by that time kn ...

, where clashes between demonstrators and the police ended up with several people dead and precipitated the fall of the government. De la Rúa eventually fled the Casa Rosada in a helicopter on 21 December. Following the presidential succession procedures established in the Constitution of Argentina, the Senate chairman was next in the line of succession in the absence of the president and the vice-president. Accordingly, Ramón Puerta took office as a caretaker

head of state A head of state (or chief of state) is the public persona who officially embodies a state Foakes, pp. 110–11 " he head of statebeing an embodiment of the State itself or representatitve of its international persona." in its unity and ...

, and the Legislative Assembly (a joint session of both chambers of Congress) was convened. Adolfo Rodríguez Saá, the governor of

San Luis Province San Luis () is a province of Argentina located near the geographical center of the country (on the 32° South parallel). Neighboring provinces are, from the north clockwise, La Rioja, Córdoba, La Pampa, Mendoza and San Juan. History The cit ...

, was eventually appointed as the new interim president.

Debt default

During the last week of 2001, the administration defaulted on the larger part of the public debt, US$132 billion, a seventh of all the money borrowed by the

Third World The term "Third World" arose during the Cold War to define countries that remained non-aligned with either NATO or the Warsaw Pact. The United States, Canada, Japan, South Korea, Western European nations and their allies represented the " First ...

. Politically, the most heated debate involved the date of the following elections. Proposals ranged from March 2002 to October 2003, the end of De la Rúa's term. Rodríguez Saá's economic team came up with a scheme designed to preserve the convertibility regime, dubbed the "Third Currency" Plan. It consisted of creating a new, non-convertible currency, the ''Argentino'', that would coexist with convertible pesos and US dollars. It would circulate as cash, or but not in checks, promissory notes, or other instruments, which could be denominated in pesos or dollars. It would be partially guaranteed with federally managed land to counterbalance inflationary tendencies. Argentines having legal status would be used to redeem all complementary currency already in circulation; their acceptance as a means of payment was quite uneven. It was hoped that convertibility would restore public confidence, and the non-convertible nature of this currency would allow for a measure of fiscal flexibility (unthinkable with pesos) to ameliorate the crippling recession. Critics called the plan merely a "controlled devaluation" but its advocates countered that since controlling a devaluation is perhaps its thorniest issue, that criticism was a praise in disguise. The plan had enthusiastic supporters among mainstream economists (the most well-known being perhaps Martín Redrado, a former

Banco Central de la República Argentina The Central Bank of the Argentine Republic ( es, Banco Central de la República Argentina, BCRA) is the central bank of Argentina, being an autarchic entity. Article 3 of the Organic Charter lists the objectives of this Institution: “The bank ...

president) citing technical arguments. However, it was not implemented because the Rodríguez Saá government lacked the required political support. Rodriguez Saá lost the support of his own

Justicialist Party The Justicialist Party ( es, Partido Justicialista, ; abbr. PJ) is a major political party in Argentina, and the largest branch within Peronism. Current president Alberto Fernández belongs to the Justicialist Party (and has, since 2021, serve ...

and resigned before the end of the year. The Legislative Assembly convened again, appointing Peronist Senator

Eduardo Duhalde Eduardo Alberto Duhalde (; born 5 October 1941) is an Argentine Peronist politician who served as the interim President of Argentina from January 2002 to May 2003. He also served as Vice President and Governor of Buenos Aires in the 1990s. Bo ...

Buenos Aires Province Buenos Aires (), officially the Buenos Aires Province (''Provincia de Buenos Aires'' ), is the largest and most populous Argentine province. It takes its name from the city of Buenos Aires, the capital of the country, which used to be part of th ...

, who had been the runner-up in the 1999 race for the presidency.

End of fixed exchange rate

In January 2002, after much deliberation, Duhalde abandoned the

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 US dollar. In addition to the ''corralito'', the Ministry of Economy dictated the ''pesificación''; all bank accounts denominated in dollars would be converted to pesos at an official rate. Deposits would be converted at 1.40 ARS per dollar and debt was converted on 1 to 1 basis. The exchange rate spiked as depositors converted their peso deposits back into US dollars. By October 2002, depositors who withdraw lost 50% of their value in dollars. That angered most savings holders and attempts were made to declare it unconstitutional. After a few months, the exchange rate was mostly a

floating exchange rate In macroeconomics and economic policy, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange rate regime in which a currency's value is allowed to fluctuate in response to foreign exchange ma ...

. The peso further depreciated, which prompted increased inflation. Argentina depended heavily on imports but then could not replace them locally. Inflation and unemployment worsened during 2002. Then, exchange rate had reached nearly 4 pesos per dollar, and the accumulated inflation since the devaluation was about 80%, considerably less than predicted by most orthodox economists. The quality of life of the average Argentine 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 supply of pesos did not meet the demand for cash (even after the devaluation), complementary currencies kept circulating alongside them. Fears of hyperinflation as a consequence of devaluation quickly eroded their attractiveness. Their acceptability now ultimately depended on the state's irregular willingness to take them as payment of taxes and other charges. While the regional currency was frequently accepted at the same value as the peso,

Entre Ríos Province Entre Ríos (, "Between Rivers") is a central province of Argentina, located in the Mesopotamia region. It borders the provinces of Buenos Aires (south), Corrientes (north) and Santa Fe (west), and Uruguay in the east. Its capital is Paraná ...

's ''Federal'' fared among the worst, discounted by an average 30% as even the provincial government that had issued them was reluctant to accept them. There were also frequent rumors that the first state would banish complementary currency overnight, leaving their holders with useless printed paper.

Immediate effects

Buenos Aires - Manifestación contra el Corralito - 20020206-17

Aerolíneas Argentinas was one of the most affected Argentine companies, canceling all international flights for various days in 2002. The airline came close to bankruptcy but survived. Several thousand homeless and jobless Argentines found work as '' cartoneros'', cardboard collectors. An estimate in 2003 had 30,000 to 40,000 people scavenging the streets for cardboard to sell to recycling plants. Such desperate measures were common because of the unemployment rate, nearly 25%. Argentine agricultural products were rejected in some international markets for fear that they might have been damaged by the chaos. The US Department of Agriculture put restrictions on Argentine food and drug exports.

Recovery

Evolution of the Argentine GNP, 1999-2004

Duhalde eventually stabilised the situation somewhat and called for elections. On 25 May 2003, Néstor Kirchner took office as the new president. Kirchner kept Duhalde's Minister of Economy, Roberto Lavagna. Lavagna, a respected economist with centrist views, showed a considerable aptitude at managing the crisis, with the help of

heterodox In religion, heterodoxy (from Ancient Greek: , "other, another, different" + , "popular belief") means "any opinions or doctrines at variance with an official or orthodox position". Under this definition, heterodoxy is similar to unorthodoxy, w ...

measures. The economic outlook was completely different from that of the 1990s. The devalued peso made Argentine exports cheap and competitive abroad and discouraged imports. In addition, the high price of

soybeans The soybean, soy bean, or soya bean (''Glycine max'') is a species of legume native to East Asia, widely grown for its edible bean, which has numerous uses. Traditional unfermented food uses of soybeans include soy milk, from which tofu ...

in the international market produced massive amounts of foreign currency;

China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...

became a major buyer of Argentina's soy products. The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and allocated large sums for social welfare but controlled expenditure in other fields. The peso slowly rose, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned. The huge

trade surplus The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balanc ...

ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from rising further, which would have adversely affected budget balances by limiting export tax revenues and discouraged further reindustrialisation. The central bank started rebuilding its dollar reserves. By December 2005, foreign currency reserves had reached $28 billion (they were later reduced by the payment of the full debt to the IMF in ). The downside of this reserve accumulation strategy is that US dollars had to be bought with freshly issued pesos, which risked inflation. The Central Bank sterilized its purchases by buying Treasury letters. In this way the exchange rate stabilised to about 3:1. Néstor Kirchner y Roberto Lavagna-Buenos Aires-23 de agosto de 2004

Néstor Kirchner y Roberto Lavagna-Buenos Aires-23 de agosto de 2004

The currency exchange issue was complicated by two opposing factors: a sharp increase in imports since 2004, which raised the demand for dollars, and the return of foreign investment, which brought fresh currency from abroad, after the successful restructuring of about three-quarters of the external debt. The government set up controls and restrictions aimed at keeping short-term speculative investment from destabilising financial markets. The country faced a potential debt crisis in late July 2014, when a

New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * '' ...

judge ordered Argentina to pay hedge funds the full interest on bonds it had swapped at a discount rate during 2002. If the judgement proceeded, Argentina argued, the country would become insolvent and have a second debt default. Argentina's recovery suffered a minor setback in 2004, when rising industrial demand caused a short-lived

energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...

. Argentina continued to grow strongly, however, and GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007. Though wages averaged a 17% annual increase from 2002 to 2008, and rising 25% in the year to May 2008, inflation ate away at the increases: 12.5% in 2005; 10% in 2006; nearly 15% in 2007, and over 20% during 2008. The government was accused of manipulating inflation statistics, and ''

The Economist ''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Eco ...

'' began to turn to private sources instead. The surveying volume prompted the government to increase export tariffs and to pressure retailers into one price freeze after another in a bid to stabilize prices but with little effect. While unemployment has been considerably reduced (it has hovered around 7% since 2011), Argentina has so far failed to reach an equitable

distribution of income In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...

. Nevertheless, economic recovery after 2002 was accompanied by significant improvements in income distribution: in 2002, the richest 10% absorbed 40% of all income, compared to 1.1% for the poorest 10% (36 times); but by 2013, the former received 27.6% of income, and the latter, 2% (14 times). surveying. That level of inequality compares favorably to levels in most of Latin America and, in recent years, the United States as well. Living standards recovered significantly after growth resumed in 2003. Even using private inflation estimates, real wages rose by around 72% from their low point, in 2003, to 2013. Argentina's domestic new auto market recovered especially quickly from a low of 83,000 in 2002 (a fifth the levels of the late 1990s) to a record 964,000 in 2013.

Cooperatives

During the economic collapse, many business owners and foreign investors sent their money overseas. As a result, many small and medium enterprises closed for lack of capital. The majority of their workers, faced with a sudden loss of employment and no source of income, decided to reopen the closed facilities on their own as self-managed

cooperative A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-contro ...

s.Benjamin Dangl, 'Occupy, Resist, Produce: Worker Cooperatives in Argentina' http://upsidedownworld.org/coops_arg.htm Worker cooperatives include the factory Zanon (

FaSinPat FaSinPat ( es, Fábrica Sin Patrones, lit=Factory Without Bosses), 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 move ...

), the four-star Hotel Bauen, the suit factory Brukman, and the printing press Chilavert. In some cases, former owners sent police to remove workers from the workplaces; that was sometimes successful but in other cases, workers defended occupied workplaces against the state, the police, and the bosses. A survey by an Buenos Aires newspaper found that around a third of the population had participated in

general assemblies A general assembly or general meeting is a meeting of all the members of an organization or shareholders of a company. Specific examples of general assembly include: Churches * General Assembly (presbyterian church), the highest court of presby ...

. The assemblies used to take place in street corners and public spaces, and they generally discussed ways of helping each other in the face of eviction, or organizing around issues such as health care, collective food buying, or food distribution programs. Some created new structures of health care and schooling. Neighborhood assemblies met once a week in a large assembly to discuss issues that affected the larger community. In 2004, '' The Take'', a documentary, was released on the assemblies.

Effects on wealth distribution

Although GDP grew consistently and quickly after 2003, it did not reach the levels of 1998, the last year before the crisis, until late 2004. Other macroeconomic indicators followed suit. A study by Equis, an independent counseling organization, found out that two measures of

economic inequality There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of ...

, the Gini coefficient and the wealth gap between the 10% poorest and the 10% richest among the population, grew continuously from 2001 to March 2005. Similar statistics are available from the World Bank.

Debt restructuring

When the default was declared in 2002, foreign investment stopped and capital flow ceased almost completely. The government faced severe challenges in trying to refinance its debt. The government reached an agreement in 2005 by which 76% of the defaulted bonds were exchanged for other bonds at a nominal value of 25 to 35% of the original and at longer terms. A second debt restructuring in 2010 brought the percentage of bonds out of default to 93%, but some creditors have still not been paid. Foreign currency denominated debt thus fell as a percentage of GDP from 150% in 2003 to 8.3% in 2013.

Criticism of IMF

The IMF accepted no discounts in its part of the Argentine debt. Some payments were refinanced or postponed on agreement. However, IMF authorities at times expressed harsh criticism of the discounts and actively lobbied for the private creditors. In a speech before the

United Nations General Assembly The United Nations General Assembly (UNGA or GA; french: link=no, Assemblée générale, AG) is one of the six principal organs of the United Nations (UN), serving as the main deliberative, policymaking, and representative organ of the UN. Curr ...

on 21 September 2004, Kirchner said, "An urgent, tough, and structural redesign of the International Monetary Fund is needed, to prevent crises and help in rovidingsolutions." Implicitly referencing the fact that the intent of the original

Bretton Woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...

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 1–2 October 2004, at the annual meeting of the IMF/

, leaders of the IMF, the

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...

, the Group of Seven industrialised nations, and the

Institute of International Finance An institute is an organisational body created for a certain purpose. They are often research organisations (research institutes) created to do research on specific topics, or can also be a professional body. In some countries, institutes can ...

(IIF), warned Kirchner that Argentina had to come to an immediate debt-restructuring agreement with creditors, increasing its primary budget surplus to slow debt increases and imposing structural reforms to prove to the world financial community that it deserved loans and investment. In 2005, turned its primary surplus into an actual surplus, Argentina began paying the IMF on schedule, with the intention of regaining financial independence. On 15 December 2005, following a similar action by Brazil, Kirchner suddenly announced that Argentina would pay the whole debt to the IMF. The debt payments, totaling US$9.810 billion, were previously scheduled as instalments until 2008. Argentina paid it with the central bank's foreign currency reserves. The payment was made on 6 January 2006. 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 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.

Films

* ''

Memoria del Saqueo ''Social Genocide'' ( es, Memoria del saqueo) is a 2004 Argentine documentary film directed by Fernando Solanas Fernando Ezequiel "Pino" Solanas (16 February 1936 – 6 November 2020) was an Argentine film director, screenwriter, and politician. ...

, by

Pino Solanas Fernando Ezequiel "Pino" Solanas (16 February 1936 – 6 November 2020) was an Argentine film director, screenwriter, and politician. His films include; '' La hora de los hornos (The Hour of the Furnaces)'' (1968), '' Tangos: el exilio de Gardel'' ...

'' * '' Un Día de suerte'' * '' The Take'' * '' Nueve Reinas'' * ''

Heroic Losers ''Heroic Losers'' ( es, La odisea de los giles) is a 2019 Argentine heist film co-written and directed by Sebastián Borensztein, based on the novel ''La noche de la Usina'' (''The Night of the Heroic Losers'') by Eduardo Sacheri, who also co-wrot ...

References

Cato Institute The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch Ind ...

)
Confiscatory Deflation: The Case of Argentina
(Joseph T. Salerno, PhD Professor of Economics)
No Tears for Argentina
(Antony P. Mueller, PhD Professor of Economics)
Report of the External Evaluation of the Independent Evaluation Office
(International Monetary Fund)
The Crisis that Was Not Prevented: Lessons for Argentina, the IMF, and Globalisation
(Jan Joost Teunissen and Age Akkerman)

(PBS, Wide Angle)
What went wrong in Argentina?
(Steve H. Hanke, PhD Professor of Applied Economics and Kurt Schuler, PhD Economics) {{DEFAULTSORT:Argentine Economic Crisis (1999-2002) 1998 in Argentina 1999 in Argentina 2000 in Argentina 2001 in Argentina 2002 in Argentina 1998 in economics 1999 in economics 2000 in economics 2001 in economics 2002 in economics History of government debt Economic crises in Argentina Presidency of Carlos Menem Presidency of Fernando de la Rúa Presidency of Eduardo Duhalde Recessions