Argentina

2 Pages 533 Words

“At the end of 2001, the fall political crisis blew up, during which there were five different presidents in Argentina in a brief periods of just 13 days.” (1) Some of the problems that affected Argentina were malnutrition and starvation, which is “the third world problem” (1). The economic crisis began in December 2001 to January 2002. The crisis began with partial deposit freezes on bank account. This was causing problems for the citizens of Argentina because they were only permitted to make small withdraws out of their accounts because of the freeze. In addition, “a partial default on public debt, and an abandonment of the fixed exchange rate led to a collapse in output, unemployment, and political and social turmoil.” (2)
Before the economic crisis aroused this country, they were praised for their achievements in stabilization, economic growth, and market-oriented reforms. Many competing factors contribute to the economic crisis in Argentina. For one an “excessively law fiscal policy”. (2) This problem affected the country during rapid growth, “When substantial fiscal surpluses should have been achieved as a buffer against future downturns.” (2) Another factor is the exchange rate. The convertibility regime was not allowing the needed exchange rate adjustment when there was nominal depreciation. The structural reform in certain areas was very slow paced and that affected the adjustment of domestic wages and prices. In addition, “institutional and political factors which prevented the prompt implementation of corrective measures.” (2) The appreciation of the Unite states dollar was an adverse external shock. Slow growth and high interest rates had a major impact on the crisis. This meant that there was a higher risk on Argentina’s bond. Moreover, the higher the interest rate affects the ratio of debt to GDP. The final stage of the crisis is the weakening banking system. Because the A...