Argentina Economy History


Mr De la Rua talking to Mr Domingo Cavallo

In early 1995 Argentina was severely affected by the collapse of the Mexican peso. Although the economic situations of these two countries were substantially different, investors also noted some similarities: Argentina's foreign debt and foreign reserves situations have made it difficult for the nation to maintain currency convertibility, economic growth, and stabitity-keystones to its economic recovery.

Given Argentina's history of hyperinflation, it was hardly surprising that the peso crisis caused a certain level of financial panic. The resulting lack of confidence resulted in dramatic outflows of capital during the first few months of 1995. In the course of a few months financial deposits dropped by about 20 percent, creating other serious problems: production decreased, unemployment soared and many small and medium-sized banks went into bankruptcy, including many banks owned by the provincial governments.


Most of those factors were simply a reversal of a chain of events which began battering Argentina in 1997 when Asian economies went into meltdown. Although the country initially withstood the successive shock waves that spread to Russia and then Brazil, eventually it succumbed to a bruising recession and the economy contracted 3.5 percent during 1997. Nonetheless, as the year drew to a close, the country began turning the corner.

The Menem government responded with a firm policy response by maintaining the course of the reforms inaugurated through the Convertibility Plan. It is also worked out various financial adjustments that it allowed it to receive support from the IMF, other multilateral organizations and from private banks. During 1995 and 1996, the Argentine financial system undertook a dramatic restructuring, with many smaller banks acquired and most of the provincial banks privatized. By year-end 1996, total deposits had recovered, and even exceeded the level that existed prior to the crisis.

In 1999 the candidate of the oposition (Frepaso Aliance), Mr. Fernando de la Rúa, was elected as president. Being this a very important moment in the country´s history as he became the third president elected under the Argentinean Democracy after Raúl Alfonsín (1983-1989) and Carlos Saúl Menem (1989-1985 & 1985-1999).

In december 199 a new president: Mr. De la Rúa took ofice, awared about this issues and started to implement new laws and programs to avoid the negative side of the Argentinean economic plan.

After two years in office Mr. Fernando de la Rúa had to resign as people took the streets to demonstrate against him, his Economy Minister ( Mr. Domingo Felipe Cavallo ) and all the Argentinean politicians because of their inability to find a solution to the economy and social crisis of the country. The Legislative Assembly voted Mr. Rodríguez Saa ( San Luis province Governor ) to rule the country for 3 months. One of his first announceed the entering of Argentina in default as the country could not continue to pay the foreing debt. After 10 days he had to resign as a result of lack of support by his own party ( Peronist Party ) and demonstrations against some of the member of his cabinet.

Some days later the Legislative Assembly chose Mr. Eduardo Duhalde, former Vice-President and Governor of Buenos Aires Province as the new President to rule the country for a period of 2 years until holding new elections. He took office the 2nd. of January 2002. His election in one of the most difficult periods in the Argentinean history reaffirmed the willing of Argentineans to live in democracy. His first step as entering the government was to devaluate the Peso against the Dollar in 30 % finishing with ten years of the "Convertibility Plan".

In 2002, Argentina's GNP sunk by 10.9% with respect to the previous year. Soon, however, the country managed to return to growth, with surprising strength: 8.9% in 2003, 9.0% in 2004, 9.2% in 2005, and then again 8.5% in 2006. This was initially due to a surge in exports (over all previous historical records), and then also to the return of local and international confidence, which boosted local consumption and both local and foreign investment.

In a speech before the United Nations General Assembly in May 2004, President Kirchner asked for "a structural redesign of the International Monetary Fund", which has changed "from being a lender for development to a creditor demanding privileges".

Shortly after, at the meeting of the IMF and the World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned Kirchner that Argentina must come to a debt-restructuring agreement, increase its primary budget surplus to pay more debt, and impose "structural reforms" to regain the trust of the world financial community.

The debt restructuring process was long and complex. Argentina offered a steep discount on its obligations (approximately 70%) and finally settled the matter with over 76% of its defaulted creditors (the default did not include the IMF, which has continued to be paid in due time).

In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9,810 million. The payment was partly financed by Venezuela, who bought Argentine bonds for $1,600 million.

Cristina FERNANDEZ DE KIRCHNER succeeded her husband as President in late 2007, and the rapid economic growth of previous years began to slow sharply the following year as government policies held back exports and the world economy fell into recession. Her government nationalized private pension funds in late 2008 in an attempt to bolster government coffers, but the move also adversely affected private investment spending. GPD growth fell to 0.5% in 2009.