1998–2002 Argentine great depression

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1998–2002 Argentinian great depression

Economy of Argentina
Peso (currency)
Currency Board
Corralito
Cacerolazo
2001 riots
Apagón
Debt restructuring

edit

The 1998–2002 Argentine Great Depression was an economic depression which began in the third quarter of 1998 and lasted until the second quarter of 2002.[1][2][3][4][5][6]

The depression, which began due to the Russian and Brazilian financial crises,[1] caused widespread unemployment, riots, the fall of the government, a default on the country's foreign debt, the rise of alternative currencies and the end of the peso's fixed exchange rate to the US dollar.[7][1] The economy shrank by 20 percent from 1998 to 2002.[2][6] In terms of income, over 50 percent of Argentines were poor and 25 percent, indigent; seven out of ten Argentine children were poor at the depth of the crisis in 2002.[1][6]

By the first half of 2003 GDP growth had returned, surprising economists and the business media,[8][9] and the economy began to grow at an average 9% per year.[10][11] Argentina's GDP exceeded pre-crisis levels by 2005, and Argentine debt restructuring that year were 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 funds remained ongoing.[12][13] Bondholders who participated in the restructuring have been paid punctually and have seen the value of their bonds rise.[14][15] Argentina repaid its IMF loans in full in 2006.[16]

Origins[edit]

Argentina's many years of military dictatorship (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 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 economic platform centered around anti-labor, monetarist 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, for never-finished projects, higher defense spending, and the Falklands War. 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 Great Depression.[17]

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 measures and a new currency, the 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.[18] 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.[19] Confidence in the Austral Plan, however, collapsed in late 1987, and inflation, which 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 5,000% for the year. Amid riots, President Alfonsín resigned five months before the end of his term and President-elect Carlos Menem took office in July.[20]

1990s[edit]

After a second bout of hyperinflation, Domingo Cavallo was appointed Minister of the Economy in January 1991.[21][22] On April 1, he fixed the value of Argentine currency at 10,000 per US$.[23] Australs could be freely converted to dollars at banks. To secure this "convertibility" the Central Bank of Argentina had to keep its U.S. dollar foreign exchange reserves 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 U.S. dollars. This regime was later modified by a law (Ley de Convertibilidad) which restored the Argentine peso as the national currency.[24]

The convertibility law reduced inflation sharply and thereafter preserved the value of the currency. This raised the quality of life for many citizens who could again afford to travel abroad, buy imported goods or ask for credit in dollars at traditional interest rates. The fixed exchange rate reduced the cost of imports, which produced a flight of dollars from the country, as well as the progressive loss of industrial infrastructure and employment.

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 and money laundering contributed to the movement of funds toward offshore banks. A congressional committee started investigations in 2001 over accusations that Central Bank Governor Pedro Pou (a prominent advocate of dollarization) and members of the board of directors had overlooked money laundering within Argentina's financial system.[25] Clearstream was accused of being instrumental in this process.

Other Latin American countries, including Mexico and Brazil (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 privatisation of state companies had ended. After 1999, Argentine exports were harmed by the devaluation of the Brazilian real and 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 Euro area (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. President Fernando de la Rúa was elected in 1999 on a reform platform which nevertheless sought to maintain the peso's 1-to-1 convertibility to the dollar. He inherited a country with high unemployment (15%), lingering recession, and continued high levels of borrowing.[26] In 1999, Economic stability became economic stagnation (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 had always issued complementary currency in the form of bonds and drafts to manage shortages of cash, the scale of such borrowing reached unprecedented levels during this period. This led to their being called "quasi-currencies". The strongest of them was Buenos Aires's Patacón. The national government issued its own quasi-currency—the LECOP.[27]

In a 2001 interview, journalist Peter Katel identified three factors, converging at "the worst possible time", to explain why the Argentine economy unraveled:

  1. The fixed exchange rate between Argentine peso and the US dollar (created at the start of the 1990s by the Economy Minister at the time, Domingo Cavallo).
  2. The large amounts of borrowing by former Argentine president, Carlos Menem.
  3. An increase in debt due to reduced tax revenues.[28]

Rates, riots, resignations and default[edit]

When a short-lived 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, the national deficit widened to 2.5% of GDP in 1999 and its external debt surpassed 50% of GDP.[29] Seeing these 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 US$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 growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases.[30] Following vice president Carlos Álvarez' resignation in October 2000 (2000-10) over bribery suspicions in the Upper House,[31] the crisis accelerated.[citation needed]

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 November 2000 (2000-11).[32][not in citation given] In early November, Standard & Poor's placed Argentina on a credit watch, and a treasury bill auction required paying 16% interest (up from 9% in July); this was the second highest rate of any country in South America at the time.[33]

Rising bond yields forced the country to turn to major international lenders, such as the IMF, World Bank and the U.S. Treasury, which would lend to the government at below-market rates, and to comply with the accompanying conditions. Several more rounds of belt-tightening followed. José Luis Machinea resigned as Minister of Economy in March 2001.[34][35] He was replaced with Ricardo López Murphy,[36] who lasted less than three weeks in office before being replaced with Cavallo.[34]

Standard and Poor's cut the credit rating of the country's bonds to B– in July 2001.[37] Cavallo reacted by offering bondholders a swap, whereby longer-term, higher-interest bonds would be exchanged for bonds coming due in 2010. The "mega-swap" (megacanje), as Cavallo referred to it, was accepted by most bondholders, and delayed up to $30 billion in payments that would have been due by 2005;[38] but it also added $38 billion in interest payments in the out years, and 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.[39]

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[40]—triggering nationwide strikes,[41] and, starting in August, it paid salaries of the highest-paid employees in I.O.U.s instead of money.[42] This further depressed the weakened economy. The unemployment rate rose to 16.4% in August 2001[43] up from a 14.7% a month earlier,[44] and it reached 20% by December.[45]

In October 2001 (2001-10), public discontent with the economic conditions was expressed in the nationwide election. President Fernando de la Rúa's alliance lost seats in both chambers of the Argentine National Congress, leaving it in the minority. Over 20% of voters chose to enter so-called "anger votes", returning blank or defaced ballots rather than indicate support of any candidate.[46]

The crisis intensified when, on 5 December 2001,[34] the IMF refused to release a US$1.3 billion tranche of its loan, citing the failure of the Argentine government to reach previously agreed-upon budget deficit targets,[47] and demanded further budget cuts, amounting to 10% of the federal budget.[48] On 4 December, Argentine bond yields stood at 34% over U.S. treasury bonds, and, by 11 December, the spread jumped to 42%.[49][50]

By the end of November 2001 (2001-11), people began withdrawing large sums of dollars from their bank accounts, turning pesos into dollars and sending them abroad, causing a bank run. On 2 December 2001 the government enacted measures, informally known as the corralito,[51][52] that effectively froze all bank accounts for twelve months,[53][54] allowing for only minor sums of cash to be withdrawn, initially $250 a week.[55]

December 2001 riots and political turmoil[edit]

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[52][56][57][58] (banging pots and pans). These protests occurred especially in 2001 and 2002. At first the cacerolazos were simply noisy demonstrations, but soon they included property destruction,[59] often directed at banks,[60][61] foreign-owned privatized companies, and especially big American and European companies.

Amid rioting, President Fernando de la Rua resigned on 21 December 2001.

Confrontations between the police and citizens became a common sight, and fires were set on Buenos Aires avenues. De la Rúa declared a state of emergency,[62] but the situation worsened, precipitating the violent protests of 20 and 21 December 2001 in Plaza de Mayo, where clashes between demonstrators and the police ended up with several people dead, and precipitated the fall of the government.[45][63][64] De la Rúa eventually fled the Casa Rosada in a helicopter on 21 December.[65]

Following presidential succession procedures established in the Constitution, the Senate chairman was next in the line of succession in the absence of president and vice-president.[66] Accordingly, Ramón Puerta took office as a caretaker head of state, and the Legislative Assembly (a body formed by merging both chambers of the Congress) was convened.[67][68] By law, the candidates were the members of the Senate plus the Governors of the Provinces; Adolfo Rodríguez Saá, then governor of San Luis, was eventually appointed as the new interim president.[69]

Debt default[edit]

During the last week of 2001, the Rodriguez Saá administration defaulted on the larger part of the public debt, totalling US$132 billion. The amount approximately represented one seventh of all the money borrowed by the Third World.[9]

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).[citation needed]

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 called Argentino coexisting with convertible pesos and U.S. dollars. It would only circulate as cash (checks, promissory notes or other instruments could be denominated in pesos or dollars but not in Argentinos) and 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—whose acceptance as a means of payment was quite uneven. It was hoped that convertibility would restore public confidence, while the non-convertible nature of this currency would allow for a measure of fiscal flexibility (unthinkable with pesos) that could ameliorate the crippling recession. Critics called this plan merely a "controlled devaluation"; its advocates countered that since controlling a devaluation is perhaps its thorniest issue, this criticism was a praise in disguise. The "Third Currency" plan had enthusiastic supporters among mainstream economists (the most well-known being perhaps Martín Redrado, a former central bank president) citing technical arguments. However, it was not implemented because the Rodríguez Saá government lacked the required political support.

Rodríguez Saá, lost the support of his own party and resigned before the end of the year. The Legislative Assembly convened again, appointing Peronist Senator Eduardo Duhalde of Buenos Aires Province in his place; Duhalde was the runner-up in the 1999 race for the presidency.

End of fixed exchange rate[edit]

Monthly inflation in Argentina during 2002 (the peak was 10.4%, in April).

After much deliberation, in January 2002 Duhalde abandoned the peso–dollar parity 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 dollar.

In addition to the corralito, the Ministry of Economy dictated the pesificación, by which all bank accounts denominated in dollars would be converted to pesos at an official rate. This measure angered most savings holders and attempts were made to declare it unconstitutional.

After a few months, the exchange rate was left to float more or less freely. The peso further depreciated, which prompted increased inflation (since Argentina depended heavily on imports, and had no means to replace them locally at the time).

Inflation and unemployment worsened during 2002. By that time the exchange rate had reached nearly 4 pesos per dollar, while 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, originally stated in convertible pesos. Their acceptability now ultimately depended on the State's irregular willingness to take them as payment of taxes and other charges.

While the Patacón was frequently accepted at the same value as the peso, Entre Ríos's Federal was among the worst-faring, 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 Government would simply banish complementary currency overnight (instead of redeeming them, even at disadvantageous rates), leaving their holders with useless printed paper.

Immediate effects[edit]

Depositors protest the freezing of their accounts. Their mostly dollar-denominated accounts were converted to pesos at less than half their new value.

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 newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. An estimate in 2003 put the number of people scavenging the streets for cardboard to sell to recycling plants at 30,000 to 40,000 people. Such desperate measures were common given the unemployment rate of nearly 25%.[70]

Argentine agricultural products were rejected in some international markets, for fear they might arrive damaged by the chaos. The United States Department of Agriculture put restrictions on Argentine food and drug exports.

Recovery[edit]

Evolution of the Argentine GNP, 1999–2004.
Foreign currency reserves of Argentina's central bank, in millions of USD.

Duhalde eventually stabilised the situation to a certain extent, 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, in his post. Lavagna, a respected economist with centrist views, showed a considerable aptitude at managing the crisis, with the help of heterodox 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 soy in the international market produced massive amounts of foreign currency (with China becoming 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, while controlling expenditure in other fields.[71]

The peso slowly rose, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned. The huge trade surplus 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 discourage further reindustrialisation. The central bank started rebuilding its dollar reserves.

By December 2005, foreign currency reserves had reached US$28 billion (they were later reduced by the payment of the full debt to the IMF in January 2006 (2006-01)). The downside of this reserve accumulation strategy is that the dollars had to be bought with freshly issued pesos, which risked inflation. The Central Bank sterilized its purchases by selling Treasury letters. In this way the exchange rate stabilised near 3:1.

President Néstor Kirchner and Economy Minister Roberto Lavagna discuss policy, August 2004.

The currency exchange issue was complicated by two mutually 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.

Argentina's recovery suffered a minor setback in 2004 when rising industrial demand caused a short-lived energy crisis. Argentina continued to grow strongly, however: GDP jumped 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007.[71] Though wages averaged a 17% annual increase from 2002–2008 (jumping 25% in the year to May 2008),[72] inflation ate away at these increases: 12.5% in 2005; 10% in 2006; nearly 15% in 2007 and over 20% during 2008.[citation needed] The government was accused of manipulating inflation statistics leading for example, The Economist magazine to turn to private sources instead.[73] This prompted the government to increase export tariffs and to pressure retailers into one price freeze after another in a bid to stabilize prices, so far with little effect. Even using private inflation estimates, however, real wages rose by around 72% from their low point in 2003 to 2013.[74] Argentina's domestic new auto market recovered especially quickly, growing from a low of 83,000 in 2002 (one fifth the levels of the late 1990s) to a record 964,000 in 2013.[75]

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. 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);[76] but by 2013, the former received 27.6% of income, and the latter, 2% (14 times).[77] This level of inequality compares favorably to levels in most of Latin America, and in recent years the United States as well.[76] The country faced a debt crisis in late July 2014 when a New York judge ordered Argentina to pay hedge funds the full interest on bonds they swapped at a discount rate during 2002. If the judgement proceeded, Argentina argued, it would render the country insolvent and cause a second debt default.[78]

Cooperatives[edit]

During the economic collapse, many business owners and foreign investors sent their money overseas. As a result, many small and medium enterprises closed due to lack of capital, thereby exacerbating unemployment. Many workers at these enterprises, faced with a sudden loss of employment and no source of income, decided to reopen the closed facilities on their own, as self-managed cooperatives.[79][80]

Worker managed cooperative businesses include ceramics factory Zanon (FaSinPat), to the four-star Hotel Bauen, to suit factory Brukman, to printing press Chilavert, and many others. In some cases, former owners sent police to remove workers from these workplaces; this was sometimes successful but in other cases workers defended occupied workplaces against the state, the police and the bosses.[79]

A survey by an Buenos Aires newspaper found that around 1/3 of the population had participated in general assemblies. The assemblies used to take place in street corners and public spaces, and 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 assemblies created new structures of health care and schooling. Neighborhood assemblies met once a week in a large assembly to discuss issues affecting the larger community.[81] In 2004, a documentary covering these events was released.

Some businesses were legally purchased by the workers for nominal fees, while others remain occupied by workers who have no legal standing (and in some cases reject negotiations). The Argentine government is considering a Law of Expropriation that would transfer some occupied businesses to their worker-managers.[citation needed]

Effects on wealth distribution[edit]

Although GDP grew consistently and quickly after 2003, it only reached the levels of 1998 (the last year before the recession) in late 2004. Other macroeconomic indicators followed suit. A study by Equis, an independent counseling organization, found out that two measures of economic inequality, the Gini coefficient and the wealth gap between the 10% poorest and the 10% richest among the population, grew continuously since 2001, and decreased for the first time in March 2005.

Poverty in Argentina
Date of measurement Extreme poverty Under poverty line
May 2001 11.6% 35.9%
October 2001 13.6% 38.3%
May 2002 24.8% 53.0%
October 2002 27.5% 57.5%
May 2003 26.3% 54.7%
2nd sem 2003 20.5% 47.8%
1st sem 2004 17.0% 44.3%
2nd sem 2004 15.0% 40.2%
1st sem 2005 13.6% 38.5%
2nd sem 2005 12.2% 33.8%
1st sem 2006 11.2% 31.4%
2nd sem 2006 8.7% 26.4%
2nd sem 2007 5.9% 20.6%
1st sem 2008 5.1% 17.8%
2nd sem 2008 4.4% 15.3%

The table on the left shows statistics of poverty in Argentina, in percent of the population. The first column shows the date of the measurement (note that the method and time changed in 2003; poverty is now measured each semester). Extreme poverty is here defined as not having enough money to eat properly. The poverty line is set higher: it is the minimum income needed for basic needs including food, clothing, shelter, and studies.

Similar statistics are available from the World Bank.[82]

Debt restructuring[edit]

When the default was declared in 2002, foreign investment stopped and capital flow ceased almost completely. The Argentine government faced severe challenges trying to refinance its debt.

The government reached an agreement in 2005 by which 76% of the defaulted bonds were exchanged for others, with a nominal value of 25–35% of the original and at longer terms. A second debt restructuring in 2010 brought the percentage of bonds out of default to 93%, though holdout lawsuits led by vulture funds remained ongoing.[12][13] Foreign currency denominated debt thus fell as a percentage of GDFP from 150% in 2003 to 8.3% in 2013.[15]

Criticism of the IMF[edit]

The International Monetary Fund 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 on 21 September 2004, President Kirchner said that "An urgent, tough, and structural redesign of the International Monetary Fund is needed, to prevent crises and help in [providing] solutions". Implicitly referencing the fact that the intent of the original Bretton Woods system 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/World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned President Kirchner that Argentina had to come to an immediate debt-restructuring agreement with creditors, increase its primary budget surplus to slow debt increases, and impose 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, President Kirchner suddenly announced that Argentina would pay the whole debt to the IMF. The debt payments, totaling 9.810 billion USD, were previously scheduled as installments until 2008. Argentina paid it with the central bank's foreign currency reserves. The payment was made on 6 January 2006.[83]

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.[citation needed]

Films[edit]

See also[edit]

References[edit]

  1. ^ a b c d Cibils, Alan B.; Weisbrot, Mark; Kar, Debayani (3 September 2002). "Argentina Since Default: The IMF and the Depression". Center for Economic and Policy Research. Retrieved 23 September 2013. "But this approach has failed for more than four years, as the economy remains mired in a depression, with a loss of more than 20 percent of GDP since the last business cycle peak in 1998.
    (...) Furthermore, the crisis was not caused by fiscal profligacy: the worsening of the central government’s fiscal balance from 1993 to 2002 was not a result of increased government spending (other than interest payments). Rather, there was a decline in government revenue due to the recession, which began in the third quarter of 1998. More importantly, Argentina got stuck in a debt spiral in which higher interest rates increased the debt and the country’s risk premium, which led to ever higher interest rates and debt service until its default in December of 2001. The interest rate shocks came from outside, starting with the US Federal Reserve’s decision to raise short-term rates in February of 1994, and on through the Mexican, Asian, Russian, and Brazilian financial crises (1995–1999).
    (...)GDP has declined at a record 16.3 percent annual rate in the first quarter of 2002. Unemployment stands at 21.5 percent of the labor force, and real monthly wages have declined by 18 percent over the course of the year. Official poverty and indigence rates have reached record levels: 53% of Argentines now live below the official poverty line, while 25% are indigent (basic needs unmet). Since October 2001, 5.2 million Argentines have fallen below the poverty line, while seven out of ten Argentine children are poor today.
    (...)While this is the worst economic crisis in Argentine history, there are a number of reasons to view the economy as poised for a rapid recovery, and one that can take place without external financing. Most importantly, Argentina is running a large current account and trade surplus. Primarily a result of the devaluation, the export sector has vastly expanded as a share of the economy (see below), and is considerably more competitive internationally.
    (...)The second major private outflow, which coincides with the Asian, Russian, and Brazilian crises, sent the economy into a recession from which it has never recovered."
     
  2. ^ a b Saxton, Jim (June 2003). "Argentina's Economic Crisis: Causes and Cures". Joint Economic Committee. Washington, D.C.: United States Congress. Archived from the original on 29 October 2013. Retrieved 23 September 2013. "In 1998, Argentina entered what turned out to be a four-year depression, during which its economy shrank 28 percent." 
  3. ^ "Argentina's collapse: Scraping through the great depression". The Economist (Rosario, Argentina). 30 May 2002. Archived from the original on 20 October 2013. Retrieved 23 September 2013. 
  4. ^ Schuler, Kurt (August 2005). "Ignorance and Influence: U.S. Economists on Argentina’s Depression of 1998–2002". Intellectual Tyranny of the Status Quo. Econ Journal Watch. pp. 234–278. Archived from the original on 25 December 2013. Retrieved 23 September 2013. 
  5. ^ Kehoe, Timothy J. "What Can We Learn from the 1998–2002 Depression in Argentina?" (PDF). Minneapolis: Federal Reserve Bank of Minneapolis. pp. 1, 5. Retrieved 23 September 2013. "Abstract in 1998–2002, Argentina experienced what the government described as a "great depression" (...) Although it started more slowly than the U.S. Great Depression, the 1974–90 great depression in Argentina lasted longer and resulted in a larger deviation in output from potential as measured by the 2 percent growth path. Figure 2 shows that between 1974 and 1990, real output per working-age person fell by almost 44 percent compared to the 2 percent growth path, with a decline of almost 25 percent in the first decade. Notice that this economic performance was horrible even ignoring the trend—real output per working-age person fell 23 percent, making the period 1975–90 in Argentina a great depression by any reasonable definition. Over the period 1990–98, except for a brief downturn in 1995 associated with the Tequila Crisis, Argentina boomed, with cumulative growth almost 17 percent more than the 2 percent growth path (37 percent ignoring the trend). Starting in 1998, however, Argentina entered yet another great depression, with real output per working-age person falling by more than 29 percent by 2002, compared to the 2 percent growth path (23 percent ignoring the trend). As noted by the Argentine government in the earlier quotation, the decline was particularly severe in 2001 and 2002." 
  6. ^ a b c Pascoe, Thomas (2 October 2012). "Britain is following Argentina on the road to ruin". The Telegraph (London). Archived from the original on 25 April 2014. "In 1998, Argentina entered what was to become a savage depression. Like Britain, it had previously been a poster boy for free-market capitalism. (...) As in Britain, the crisis of 1998–2002 was predominantly one of debt. It began once credit markets froze – in Argentina's case this followed currency crises in Russia and Brazil which spooked the market. Argentina's crisis ought to have been a shallow one. Instead, a series of spectacular misjudgments ensured that its economy shrank 28pc, the peso fell to a third of its pre-crash value against the dollar, inflation hit 41%, unemployment reached one quarter of the workforce, real wages fell 24pc, and over half of the population fell below the poverty line." 
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