Download Argentina

Angel Munoz
Kolby Patrick
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History
Threats
The Crisis
IMF Intervention
Critiques
Q&A
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1983 – Raul Alfonsin becomes president
◦ Inherits Huge Debt from Predecessor
◦ Prints Money to pay off debt – Inflation ↑
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1991 – Carlos Menem Assumes Power
◦ Chief Economist, Domingo Cavallo, recommends a
fixed exchange rate to stifle hyperinflation
◦ Recommends Privatization of many industries
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1995 – Establishment of MERCOSUR
◦ A common market between Argentina, Brazil,
Paraguay and Uruguay
◦ Aimed To Eliminate Tariffs between the nations
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Fixed Exchange Rate
◦ Halts Hyperinflation
◦ Encourages Imports
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Privatization
◦ Decreases Government Deficits
◦ Decreases Public Debt
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MERCOSUR
◦ Increases Exports
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U.S. Dollar Appreciation
◦ Exports becoming more expensive
◦ Exports Decline
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Brazil Devalues the real
◦ Brazilian Exports more attractive and less expensive
◦ Argentinean Exports decline further
◦ Current Account Falls into deeper Deficit
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Capital Account dwindling
◦ Foreign Direct Investment Decreases
◦ High debt to defend Fixed Exchange Rate
◦ Argentina Fails To Pay Interest on its Debt
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Capital Account falls.
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Argentina Uses Foreign Reserves to pay debts
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Fernando de la Rua replaces Carlos Menem
◦ Forces businesses to raise prices to increase tax
revenue
◦ Businesses fail because of added costs
◦ Tax Revenues Decline
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Early 2001 - Public Debt = 50% of GDP
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GDP Drops 3%
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Late 2001 – Public Debt = 60% of GDP
10
6.062712435
5
4.291509811
1.369476632
0
Real GDP % Change
-5
-4.803435117
-6.033775263
-6.449960277
-10
-12.67826738
-15
1997
1998
1999
2000
2001
2002
2003
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Gross Domestic Product – Down 6.03%
Government Deficit – 4.5%
Total Economic Activity – Down 18%
Construction – Down 36%
Imports – Down 50%
Tax Revenue – Down 17%
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Devaluation Fears
◦ Run on the Banks
 $3.6 Billion Withdrawn
 6% of Deposit Base Withdrawn in 2 Days
 Deposits fell from $85B to $15B by July 2002
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Government imposed a freeze on withdrawals
◦ Riots ensued
◦ 20 Dead
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Removal of US$ Peg, Devaluation of the Peso
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Reduction of Government Spending
◦ Public Sector Wages dropped 13%
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Raised Interest Rates
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Unrealistic Forecasts
◦ 2001 Real GDP growth was forecasted to be +3.5%
◦ Actual Real GDP declined by over 6%
◦ Were not able to assess severity of the situation
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Oversight of Fixed Exchange Rate
◦ Should not have been permanent
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Debt Management
◦ Borrowed at higher interest rates than economic
growth rates
◦ Continued Borrowing when it did not have funds to
pay interest on existing debt
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Lending Policy
◦ Must have standards for loans
◦ Must not encourage moral hazard