Order Code RS21130 January 31, 2002
CRS Report for Congress
Received through the CRS Web
The Argentine Financial Crisis: A Chronology of Events
J. F. Hornbeck Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division
Argentina’s current crisis resulted from a confluence of events, some external to Argentina’s policy process, others directlyrelated to its political and economic choices. Although it is not easy to discern at what specific point in time Argentina’s economic situation turned into a crisis, it is clear that by early 2001, political, economic and social events had taken a significant turn for the worse. The following is a summary of these events from before Argentina’s adoption of the currency board in 1991 to developmentsin early 2002. This report will be updated periodically.
Chronology of Events1
1980s 1989 Argentina suffers through an extended period of economic instability including the Latin American debt crisis and hyperinflation. Peronist candidate Carlos Menem is elected President of Argentina and appoints Domingo Cavallo as Minister of Economy. Together they enact a major structural adjustment programincluding tax reform, privatization, trade liberalization, deregulation, and adoption of a currency board.
April 1, 1991 Argentina’s Congress enacts the Convertibility Law, which legally adopts the currency board guaranteeing the convertibility of peso currency to dollars at a one-to-one fixed rate and limiting the printing of pesos only to an amount necessary to purchase dollars in the foreignexchange market. Effectively, each peso in circulation is backed by a U.S. dollar and monetary policy is forcibly constrained to uphold that promise.
The events compiled here are drawn from standard news sources and from documents on the web page of the International Monetary Fund (IMF) at: [http://www.imf.org/].
Congressional Research Service ˜ The Library of Congress
CRS-21991-94 1995 May 1995 1995-1999 Argentina enjoys strong economic growth and the currency board is considered highly successful. Following Mexico’s December 1994 peso devaluation, capital flows out of emerging markets. Argentina’s GDP declines by 2.8%. President Menem is reelected President after convincing Congress to change electoral laws that prohibit a second term. The U.S. dollar experiences aprolonged period of real appreciation, resulting in similar appreciation of the Argentine peso relative to its trading partners. Renewed period of Argentine economic growth (5.5% in 1996, 8.1% in 1997), but current account deficit and debt measures worsen. East Asian financial crisis begins. Financial crisis moves to Russia and then Brazil. Argentina enters prolonged recession in third quarter (stillin effect) and unemployment begins to rise.
1996-1997 July 1997 1998
January September October 24 Brazil, facing its own financial crisis, devalues its currency, hurting Argentine exports, 30% of which were traded with Brazil. The Argentine Congress passes the Fiscal Responsibility Law, committing to large reductions in both federal and provincial government spending. Fernando de la Ruaof the Radical Civic Union (UCR), the opposition coalition candidate, running on a platform to end corruption (under Menem) and the recession, defeats Peronist candidate Eduardo Duhalde for President.
December 10 De la Rua is inaugurated President of Argentina and shortly thereafter seeks assistance from the IMF.
March 10 The IMF agrees to three-year $7.2 billion stand-by arrangementwith Argentina conditioned on a strict fiscal adjustment and the assumption of 3.5% GDP growth in 2000 (actual growth was 0.5%). The government announces $1 billion in budget cuts in hopes that fiscal responsibility will bring renewed confidence to economy.
CRS-3 September 15 The IMF concludes an Article IV Consultation, the required annual comprehensive review of member country...
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