Question

Argentina: Anatomy of a Financial Crisis Case Study Preparatory Questions

1. What were political and economic conditions like in Argentina in December 2001/January 2002?

2. What was the Convertibility Plan? What was it intended to accomplish?

3. What causes (both internal and external) were behind the predicament Argentina found itself in with the de-pegging of the peso and the resignation of 5 presidents in late 2001/early 2002?

4. Could the massive default by Argentina have been avoided? If so, how?

Answer 1

The Argentina Economic Crists was caused by undesirable confluence of several economic events: A hand currency peg , currency over valuation, economic Rigidity are occuned during that time pagendina Was plunged in to a devasking eco nomic crisis in december 2001 1 an uary 2002. When a partial deposit Freaze, a parlial default on pub. lie debh and an abandonment of the fixed exchange rake led to a Collapse in oudpud, high levels of unemployment and polilical and Social funmoil. The IMF also provi- ded exhensive technical assisk ance during that period. In December 1989 Argentina Fell in to hypen inflation Inflation Reached a monthly Rade of 95% in manch 1990, and th economy collapsed as Residends scrambled to find allen native means for selling prices. The convertibility programme has played an import and Role in esha Llishing

blishing the credibility of macro economic slability in Argentina. The spill over effect from the me Xelan economic crisis of December 1991 Repse send a major challenge to sogentina macro economic policy. Rather than abandoning the Convertibility plan, Argentina adopted condractionany polices in emergency debt package that allowed Argentina to cope With crisis. A strong peso hund export from nogendina and caused a pootracked economic down funn that eventually led to the abandonment of the peso-dollar pacity in 2002 This , change, in turn caused serene economic and political distress in the country. Argentina has Fall- en Back in to crisis for the Simple Reson that noch enough has changed since the last de- bache. Although they have been committed to an ambitions Reform Programme. 18 gendina's economic

and Financial Authorities have also made sevene avoidable mis- takes.