| Timeline: Argentina's Road to Ruin |
Back to Article: Argentina Didn't Fall on Its Own (Aug. 3, 2003)
Argentina's Economy Minister Domingo Cavallo introduces the system of peso convertibility, guaranteeing an exchange rate of one peso for one dollar.
The dollar peg helped bring inflation under control. In 1989, the country's inflation rate stood at 5,103 percent. It fell from 84 percent in 1991 to 17.5 percent in 1992 and 7.4 percent in 1993.
1993-94 The economy soars, at an annual growth rate above 5.5 percent, as inflation subsides and the government embarks on an ambitious program of deregulation, lowering trade barriers and privatizing state-owned enterprises including oil, telephones and power.
Argentine financial markets are battered by "contagion" from the Mexican peso crisis, and the economy falls into a brief recession, but the currency peg survives.
1996-98: The boom resumes, and Wall Street eagerly finances a massive amount of borrowing by the Argentine government. Meanwhile, however, Argentina's debt burden is growing.
Mid-1997: Financial crises begin to devastate Asia's emerging economies.
April 1998: IMF economists warn Argentine officials that the country's economy may be vulnerable to an Asian-style meltdown, but their admonitions are essentially ignored, in large part because foreign capital is flowing into the country.
October 1998: As Argentina continues to avert the crises that have now spread to Russia, Argentine President Carlos Menem is invited to address the IMF-World Bank meeting in Washington, reflecting the country's status as a sterling reformer.
Jan. 1999: Brazil is stricken by financial crisis and devalues its currency.
Mid-1999: Recession hits Argentina, thanks in large part to the impact of the Brazilian crisis. State workers take to the streets, demanding back pay from the provincial government.
October 2000: With recession dragging on, interest rates high, and Argentina's debt reaching 50 percent of GDP, Columbia University economist Charles Calomiris privately urges the government to restructure its obligations
November: A political split in the government sends capital fleeing and interest rates soaring
December: The IMF approves an emergency rescue package that includes $14 billion in IMF loans plus $6 billion more from other official lenders
February 2001: Argentine markets begin to slide anew as turmoil in Turkey undermines confidence in emerging markets, and evidence suggests that the government will not fulfill the IMF's targets
March: Domingo Cavallo, the father of the peso convertibility program, returns as economy minister.
May: A "mega-swap" of Argentine bonds, aimed at giving the country breathing space to resume growth by stretching out the government's principal and interest payments, is concluded, with nearly $30 billion worth of bonds exchanged.
June-July: Markets continue to slide, and Argentina turns again to the IMF for help.
August: IMF, under Horst Kohler's management, approves an $8 billion increase in its loan package for Argentina, including a vague proposal for some of the money to go toward restructuring the country's debt, but markets resume their decline soon thereafter.
October: Top bankers meeting in New York conclude that the country must restructure.
November: The government announces a partial debt restructuring plan.
December: To halt a flight of deposits from the banking system, Cavallo imposes restrictions in withdrawals, and the IMF announces that it does not intend to disburse a $1.3 billion loan installment. Riots ensue, forcing Cavallo and de la Rua to resign. Political chaos envelops Argentina as a succession of presidents assume office briefly.
January 2002: The government of President Eduardo Duhalde announces a formal default on the debt and ends the peso convertibility system
Argentina's economy contracts by 11 percent, unemployment soars above 20 percent.
The economy has rebounded, along with the peso and the stock market. Many forecasters expect growth in gross domestic product to reach 5 percent or more this year, and inflation remains relatively tame. But the economy is still operating well below its pre-crisis levels, and economists question whether the expansion will continue, especially because the government has not yet addressed crucial problems such as the need to restructure the banking system.
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