Transcript Argentina‘s economic crisis (1999

Argentina‘s economic crisis
(1999-2002)
International Finance
Prof. Jasper Kim
He Young Cho, Jens Naussed
Agenda
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Political and economic situation before
1999
The Currency Crisis (1999-2002)
The Argentinian Recovery (2002-today)
Conclusion
International Finance
Argentinian Financial Crisis
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Political and economic
situation before 1999
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Argentina has suffered from many years
of unstable political and economic
situation due to the frequent change of
governments between completely
opposite ideologies
The government faced several
economic crisises which enlarged their
debts
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Argentinian Financial Crisis
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Political and economic
situation before 1999
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In 1983 Raul Alfonsin was elected as
president who established the
democracy in Argentina for good
In 1985 the Austral became
Argentina`s new currency
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Argentinian Financial Crisis
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Political and economic
situation before 1999
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Hyperinflation: In 1989 the country`s
inflation rate increased up to 3079,5 %
Year
1981
1982
1983
1984
1985
1986
1987
1988
Inflation
rate (%)
104,5
164,8
343,8
626,7
672,2
90,1
131,3
343
Year
1989
1990
1991
1992
1993
1994
1995
1996
Inflation
rate (%)
3079,5
2314
171,7
24,9
10,6
4,2
3,4
0,2
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Political and economic
situation before 1999
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In 1991 the Austral was pegged to the U.S.
Dollar and in 1992 it was replaced by the Peso
 Fixed exchange rate:
10,000 Austral per U.S. Dollar or
1 Peso per U.S. Dollar
 Inflation dropped and price stability was
assured
 Quality of life improved & Imports became
cheaper
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Argentinian Financial Crisis
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Political and economic
situation before 1999
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The Convertability Law was established
Converting the Peso in U.S. Dollar has
been simplified
But convertibility had to be secured
Goal of the Law: Acceptance of
domestic currency
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Political and economic
situation before 1999
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The appreciating of the U.S. Dollar in
the end of the 1990s lead to a flow of
imports and Argentine exports became
more expensive which resulted in a
trade deficit
The global economic slowdown
sharpened this situation even more
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Argentinian Financial Crisis
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Political and economic
situation before 1999
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Brazilian economic crisis (1997-1998)
caused the Real to drop sharply
 Brazil got a competitive advantage
against Argentina regarding exports
 Argentine products were substituted
 Companies in Argentina outsourced
their plants
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Argentinian Financial Crisis
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Political and economic
situation before 1999
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Argentinian Financial Crisis
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The Currency Crisis
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The Argentinean government lost the
confidence of investors and more
capital flew away from the country
In 2001 the Argentinean people started
to withdraw their money from the
banks, converted it into dollar and sent
it abroad
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Argentinian Financial Crisis
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The Currency Crisis
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The government enacted a set of
measures that froze all bank accounts
for 12 month and only small amounts of
cash were allowed to be withdrawn
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Argentinian Financial Crisis
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The Currency Crisis
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These measures were followed by many
protests in the big cities especially in
Buenos Aires
First only noisy protests and later they
included property destruction (mainly at
banks and big US and European
companies)
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Argentinian Financial Crisis
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The Currency Crisis
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Argentinian Financial Crisis
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The Currency Crisis
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Argentinian Financial Crisis
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The Currency Crisis
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The Currency Crisis
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The Currency Crisis
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A lot of fights between citizens and
police caused Fernando de la Rua to
declare the state of emergency
On 20/21 December 2001 protests at
the Plaza de Mayo led to several dead
and the fall of the government
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The Currency Crisis
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At the beginning of 2002 the fixed 1-1
Peso-USD exchange rate was
abandoned after 10 years

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Depreciation of the peso followed
All bank accounts in US-Dollar were
converted into peso at an official rate

Savings of people lost their value
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Argentinian Financial Crisis
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The Currency Crisis
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After few month the currency was
allowed to flow more or less freely
causing high inflation rates
The situation became worse during
2002 caused by high inflation and high
unemployment rates (nearly 25 %)
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Argentinian Financial Crisis
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Argentina’s Recovery
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At the end of 2002 the situation could
be normalized to a certain extend and
new elections were hold
The devalued peso made exports more
competitive abroad, while discouraging
imports
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Argentinian Financial Crisis
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Argentina’s Recovery
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The government encouraged import
substitution and accessible credits for
businesses
New ways of tax collection were put in
place while setting large amounts of
money for social welfare aside
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Argentina’s Recovery
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Due to many exports, the Peso became more
stable
The GDP growth rate over the past years is
very high and the unemployment rate went
constantly down (today about 8.5%)
In 2005 Argentina reached an agreement that
76% of their bonds are only partly paid back
(around 25-30% of their actual value) with
longer repayment periods
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Argentinian Financial Crisis
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Conclusion
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Argentina’s government undertook very
important steps to recover from the crisis
High export rates, economic growth and
careful choices about how to use foreign
currencies helped the country to recover
It is questionable how the new global
financial crisis will effect the Argentina’s
recovery
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Argentinian Financial Crisis
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