Order Code RS21130
January 31, 2002
CRS Report for Congress
Received through the CRS Web
The Argentine Financial Crisis:
A Chronology of Events
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Argentina’s current crisis resulted from a confluence of events, some external to
Argentina’s policy process, others directly related to its political and economic choices.
Although it is not easy to discern at what specific point in time Argentina’s economic
situation turned into a crisis, it is clear that by early 2001, political, economic and social
events had taken a significant turn for the worse. The following is a summary of these
events from before Argentina’s adoption of the currency board in 1991 to developments
in early 2002. This report will be updated periodically.
Chronology of Events1
Argentina suffers through an extended period of economic instability
including the Latin American debt crisis and hyperinflation.
Peronist candidate Carlos Menem is elected President of Argentina and
appoints Domingo Cavallo as Minister of Economy. Together they enact
a major structural adjustment program including tax reform, privatization,
trade liberalization, deregulation, and adoption of a currency board.
April 1, 1991 Argentina’s Congress enacts the Convertibility Law, which legally adopts
the currency board guaranteeing the convertibility of peso currency to
dollars at a one-to-one fixed rate and limiting the printing of pesos only to
an amount necessary to purchase dollars in the foreign exchange market.
Effectively, each peso in circulation is backed by a U.S. dollar and
monetary policy is forcibly constrained to uphold that promise.
The events compiled here are drawn from standard news sources and from documents on the web
page of the International Monetary Fund (IMF) at: [http://www.imf.org/].
Congressional Research Service ˜ The Library of Congress
Argentina enjoys strong economic growth and the currency board is
considered highly successful.
Following Mexico’s December 1994 peso devaluation, capital flows out
of emerging markets. Argentina’s GDP declines by 2.8%.
President Menem is reelected President after convincing Congress to
change electoral laws that prohibit a second term.
The U.S. dollar experiences a prolonged period of real appreciation,
resulting in similar appreciation of the Argentine peso relative to its trading
Renewed period of Argentine economic growth (5.5% in 1996, 8.1% in
1997), but current account deficit and debt measures worsen.
East Asian financial crisis begins.
Financial crisis moves to Russia and then Brazil. Argentina enters
prolonged recession in third quarter (still in effect) and unemployment
begins to rise.
Brazil, facing its own financial crisis, devalues its currency, hurting
Argentine exports, 30% of which were traded with Brazil.
The Argentine Congress passes the Fiscal Responsibility Law, committing
to large reductions in both federal and provincial government spending.
Fernando de la Rua of the Radical Civic Union (UCR), the opposition
coalition candidate, running on a platform to end corruption (under
Menem) and the recession, defeats Peronist candidate Eduardo Duhalde
December 10 De la Rua is inaugurated President of Argentina and shortly thereafter
seeks assistance from the IMF.
The IMF agrees to three-year $7.2 billion stand-by arrangement with
Argentina conditioned on a strict fiscal adjustment and the assumption of
3.5% GDP growth in 2000 (actual growth was 0.5%).
The government announces $1 billion in budget cuts in hopes that fiscal
responsibility will bring renewed confidence to economy.
September 15 The IMF concludes an Article IV Consultation, the required annual
comprehensive review of member country economies.
Vice President Carlos Alvarez resigns over de la Rua’s decision not to
replace two cabinet members linked to a recent Senate bribery scandal.
December 18 The de la Rua government announces a $40 billion multilateral assistance
package organized by IMF (see below).
Argentina’s continued poor economic performance prompts the IMF to
augment the March 10, 2000 agreement by $7.0 billion as part of a $40
billion assistance package involving the Inter-American Development
Bank, the World Bank, Spain, and private lenders. The agreement
assumes GDP will grow at a rate of 2.5% in 2001 (versus actual decline of
Domingo Cavallo, Minister of Economy under Menem and architect of the
currency board ten years earlier, replaces Ricardo Lopez Murphy, who
resigns as Minister of Economy.
The de la Rua government announces a $29.5 billion voluntary debt
restructuring in which short-term debt is exchanged for new debt with
longer maturities and higher interest rates.
The peso exchange rate for merchandise trade is priced at a 50/50 dollareuro peg, effectively allowing a 7% devaluation for foreign trade in hopes
of improving Argentina’s international competitiveness. Many analysts
raise concern over the effects on the credibility of the convertibility regime.
Cavallo announces a plan to balance budget, but the markets react
negatively, expressing lack of confidence.
Unions call a nationwide strike to protest government austerity plan.
The Argentine Congress passes “Zero Deficit Law,” requiring a balanced
budget by the fourth quarter of 2001.
September 7 Based on Argentina’s commitment to implement the “Zero Deficit Law”
immediately, the IMF augments its March 10, 2000 agreement for a second
time, increasing lending commitment by another $7.2 billion.
The use of provincial bonds as “scrip” to pay public salaries becomes more
widespread as federal revenue transfers decline.
The opposition Peronist Party wins control of both chambers of Congress
in mid-term elections.
Argentina conducts a second debt swap, exchanging $60 billion of bonds
with an average interest rate of 11-12% for extended maturity notes
carrying only 7% interest rate. International bond rating agencies consider
it an effective default.
November 30 A run on the banks begins, with central bank reserves falling by $2 billion
in one day. President de la Rua imposes $1,000 per month limitation on
personal bank withdrawals.
Protests begin over bank withdrawal limitations.
The IMF withholds $1.24 billion loan installment, citing Argentina’s
repeated inability to meet fiscal targets.
Argentina announces it can no longer guarantee payment on foreign debt.
December 13 The government announces that the unemployment rate reaches near
record high of 18%. Unions call nationwide strike.
December 14 Supermarket looting begins.
December 19 Rioting spreads to major cities over deep budget cuts. The government
declares a state of siege. Minister of Economy Domingo Cavallo resigns.
December 20 President de la Rua resigns in the wake of continued rioting, leaving 28
December 21 Congress accepts President de la Rua’s resignation. Senate President
Ramon Puerta is named provisional president for 48 hours.
December 23 Congress appoints San Luis Governor Adolfo Rodriguez Saa as interim
president until elections can be held in March 2002.
December 26 The liquidity standards for banks are relaxed. Rodriguez Saa announces
a new economic plan based on: 1) suspension of payments on public debt;
2) new jobs creation program; and 3) creation of new currency (the
Argentino) to begin circulating in January 2002 and not to be convertible
to the U.S. dollar.
December 30 President Rodriguez Saa resigns after continued rioting and loss of party
support. Senate leader Puerta resigns to avoid second appointment as
interim president. No immediate successor emerges to take over the
December 31 The Argentine Congress selects Peronist Senator Eduardo Duhalde to
complete December 2003 Presidential term.
Senator Duhalde sworn in as President. He blames Argentina’s economic
problems on the free-market system and vows to change economic course.
Except for debt moratorium, new economic policies are unclear.
After the Argentine Congress passes necessary legislation, President
Duhalde announces the end of the currency board and a plan to devalue the
peso by 29% (to 1.4 to the dollar) for major foreign commercial
transactions, with a floating rate for all other transactions. Other elements
of economic plan include: converting all debts up to $100,000 to pesos
(passing on devaluation cost to creditors); capital and bank account
controls; a new tax on oil to compensate creditors for the losses that will
ensue; renegotiating public debt, and a balanced budget.
Government announces it will “guarantee” dollar deposits, but to curtail
bank runs, the $1,000 (1,500 peso) limit on monthly withdrawals is
maintained and all checking and savings accounts with balances exceeding
$10,000 and $3,000, respectively, will be converted to certificates of
deposit and remain frozen for at least one year. Smaller deposits have the
option of earlier withdrawal by moving to peso denominated accounts at
the 1.4 exchange rate.
The government extends the bank holiday two extra days, while the foreign
currency market opens for first time in three weeks. The peso falls
immediately to 1.7 per dollar.
The peso falls as low as 2.05 to the dollar in active trading.
The IMF approves request for one-year extension on $936 million payment
due January 17, keeping Argentina from falling into arrears.
The government announces that dollar denominated loans exceeding
$100,000 will be converted to pesos at 1.4 for fixed rate, deepening the
balance sheet mismatch of banks.
January 19-20 Duhalde reverses his decision to guarantee dollar deposits, which will be
converted to pesos at some undefined devalued exchange rate.
The Argentine Senate passes bankruptcy law that would use capital
controls to restrict payment of foreign private debt payments through
January 28-29 Foreign Minister Carlos Ruckauf visits with Bush Cabinet members to
appeal for political and financial support (including IMF assistance) as
protests continue in Argentina.
IMF team meets with Argentine officials, who declare intention to adopt
a floating exchange rate in near future. Argentina’s Chamber of Deputies
passes controversial bankruptcy law, stripping it of the Senate provision
prohibiting foreign debt payments, but other capital controls remain in
effect. It retains language allowing conversion of dollar denominated debt
below $100,000 to pesos at 1-to-1 rate (benefitting debtors) and
suspending creditor action on loan debt defaults for 180 days.