Argentina‘s economic crisis ( ) International Finance Prof. Jasper Kim He Young Cho, Jens Naussed

International FinanceArgentinian Financial Crisis2 Agenda Political and economic situation before 1999 The Currency Crisis ( ) The Argentinian Recovery (2002-today) Conclusion

Political and economic situation before 1999 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 International FinanceArgentinian Financial Crisis3

Political and economic situation before 1999 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 International FinanceArgentinian Financial Crisis4

Political and economic situation before 1999 Hyperinflation: In 1989 the country`s inflation rate increased up to 3079,5 % International FinanceArgentinian Financial Crisis5 Year Inflation rate (%) 104,5164,8343,8626,7672,290,1131,3343 Year Inflation rate (%) 3079, ,724,910,64,23,40,2

Political and economic situation before 1999 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 International FinanceArgentinian Financial Crisis6

Political and economic situation before 1999 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 International FinanceArgentinian Financial Crisis7

Political and economic situation before 1999 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 International FinanceArgentinian Financial Crisis8

Political and economic situation before 1999 Brazilian economic crisis ( ) 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 International FinanceArgentinian Financial Crisis9

Political and economic situation before 1999 International FinanceArgentinian Financial Crisis10

International FinanceArgentinian Financial Crisis11 The Currency Crisis 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

International FinanceArgentinian Financial Crisis12 The Currency Crisis 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

International FinanceArgentinian Financial Crisis13 The Currency Crisis 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)

International FinanceArgentinian Financial Crisis14 The Currency Crisis

International FinanceArgentinian Financial Crisis15 The Currency Crisis

International FinanceArgentinian Financial Crisis16 The Currency Crisis

International FinanceArgentinian Financial Crisis17 The Currency Crisis

International FinanceArgentinian Financial Crisis18 The Currency Crisis 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

International FinanceArgentinian Financial Crisis19 The Currency Crisis At the beginning of 2002 the fixed 1-1 Peso-USD exchange rate was abandoned after 10 years  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

International FinanceArgentinian Financial Crisis20 The Currency Crisis 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 %)

International FinanceArgentinian Financial Crisis21 Argentina’s Recovery 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

International FinanceArgentinian Financial Crisis22 Argentina’s Recovery 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

International FinanceArgentinian Financial Crisis23 Argentina’s Recovery 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

International FinanceArgentinian Financial Crisis24 Conclusion 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