Analysis of Argentinean Debt Crisis: IMF and Government Actions

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The Argentina debt affected the country between the late 90’s to the early 2000’s and can be attributed to misdiagnosis and ineffective policy. During this time the IMF and Argetina’s government worked closely together. Previous to the crisis Argentina had been celebrated for its economic policies and growth. The government worked to put in place conservative economic policy, including the privatization of companies, looser trade regulations, among other conservative changes. Economic growth in that period appears to have been in large part the result of increasing amount of international debt. Before the end of the 90’s, things began to fall apart. The crisis can be traced back to the 80’s, where the country experienced extreme…show more content…
Argentina had difficulties in their ability to shoulder debt so large. For example, Argentina had less capacity to raise tax revenue than industrial countries. Simultaneously the inflow of dollars decreased, lessening the money supply even more, this was do in large part to external factors. It was more vulnerable to external shocks, which in turn lead to low export-to-GDP ratio (Krueger 2002). For example, the US dollar appreciated against other currencies, which caused the peso also to appreciate; this resulted in weakening of demand for Argentine exports (Nataraj & Sahoo 2003). A non-competitive economy and international debt all lead to a balance of payments crisis. The 2001 the Argentine recession grew rapidly deeper. The IMF gave additional funds, on the condition that the government would eliminate its budget deficit. Yet, in doing so, the government was cutting most social programmes. The government announced that it would cut the salaries of public employees by 20% and reduce pension payments. Simultaneously, the worsening crisis raised fears the peso would devalue and the government attempted to prevent people from trading their pesos for dollars (SOURCE). The currency board rules ensured that as individuals began to convert their pesos into dollars, the central bank would shrink the money supply causing interest rates to rise sharply (Source). Before the central bank ran out of dollars, the interest rates on peso deposits would get so

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