The Argentine Financial Crisis: A Chronology of Events

In December 2001, after four years of recession and escalating social unrest, Argentina's economy collapsed, forcing the resignation of President Fernando de la Rua. After a period of short-term presidential successions, on January 1, 2002, the Argentine Congress selected Eduardo Duhalde to complete de la Rua's December 2003 term. Duhalde then struggled to resolve Argentina's deep-seated economic and political problems. The seeds of Argentina's financial and political crisis were planted in 1991 with adoption of a currency board to fight hyperinflation, a plan that rested on the guaranteed convertibility of peso currency to dollars at a one-to-one fixed rate. Argentina, however, proved unable to enforce the economic policies needed to support the convertibility plan and when beset by numerous external shocks, went from prolonged recession to financial crisis, including defaulting on $151 billion of debt, despite repeated financial assistance from the International Monetary Fund (IMF). Argentina's economy resumed growth in late 2002, quicker than many had predicted. By 2003, however, it was clear that many problems persisted, most notably high rates of unemployment and poverty. The country's financial problems also remain unresolved. Argentina faces a large debt workout with private creditors and has been unable to come to terms with the IMF over a medium-term financial assistance package. On January 16, 2003 the IMF agreed, with some reservations, to a new transitional $6.8 billion arrangement, supported by the United States and other G-7 countries as necessary for Argentina to avoid defaulting on the IMF. The IMF arrangement had few new conditions and provided sufficient financial resources only to "roll over" Argentina's IMF repayments through August 2003. The program's designers assumed that a medium-term IMF arrangement could be put in place by September 2003, when a nearly $3 billion payment comes due. On May 25, 2003, Governor NĂ©stor Kirchner was inaugurated President of Argentina in what was widely considered a fair election with high voter turnout. His administration faces daunting long-term problems as well as dealing with short-term needs, such as negotiating a new IMF agreement. To meet its multiple obligations, Argentina will have to face calls from the IMF and others to impose strict fiscal measures, redefine its federal/provincial fiscal relationship, reassess its tax structure, restructure its banking system and utility rate contracts, and face head on debt restructuring, among other painful policy choices. Under these conditions, it remains to be seen if Argentina is on a true path to political and economic recovery, or merely biding time. This is the final version of this report, which provides a summary of events from before Argentina's adoption of the currency board in 1991 to the May 25, 2003 inauguration of President Kirchner.