---092SIS73 ZHANG JING International Business( Ewha GSIS )

 In the late 1980s: hyperinflation  A few years later : the most attractive of the “emerging economies”  In 1998: started to go wrong.  By late 2001: Argentina’s economy was unraveling fast.

The fight against inflation did go well and Argentina began to recover.

 The initial aim of such measures was to ensure the acceptance of and domestic currency, since during 1989 and 1990 hyperinflation peaks, people had started to reject it as payment, demanding U.S. dollars instead.

 inflation dropped sharply,  price stability was assured,  the value of the currency was preserved,  and the quality of life for many citizens was raised.

 The fixed exchange rate made imports cheap, producing a constant flight of dollars away from the country and a progressive loss of Argentina’s industrial infrastructure, which led to an increase in unemployment.  Argentina’s public debt grew enormously during the 1990s.  In 1999 Argentina’s Gross domestic product dropped 4% and the country entered a recession.

 Foreign investors became nervous about emerging economies in general. They began to question whether countries with large foreign debts could continue to service the debts by paying interest and paying down the principal.

 In early 2002 the government surrendered the fixed exchange rate, and the peso lost 75 percent of its value in the first six months of the year.  The government also defaulted on its debt.  The peso depreciation caused huge losses in the banks.

Depositors protest the freezing of their account. Their mostly dollar-denominated accounts were converted to Pesos at less than half their new value.

 The tourism dried up, and Argentinean withdrawals from their Uruguayan accounts increased.  After its holdings of official reserves plummeted defending Uruguay’s crawling pegged exchange rate, the Uruguay government floated its currency in June; within two weeks, the currency had fallen by half.

 In July foreign investors pulled out of their Brazilian investments, and the exchange rate value of the real fell by almost 20 percent.