Don't Cry for Argentina

In my last two blog posts, I looked at how the Latin American Debt Crisis paved the way for Mexico’s Tequila Crisis and the fallout that ensued. Today I’m focusing on Argentina, I’m going to give an overview of how their economy and the political stability of the country fared following the Latin American Debt Crisis.

The Latin American Debt crisis contributed to the collapse of authoritarian regimes in countries like Argentina. In 1983 democracy was restored in Argentina when Raúl Alfonsín became president. Austerity measures were introduced to try and stabilize the economy.  However, inflation spiraled out of control and confidence in the government’s plan collapsed. In late 1989 after more than a decade of economic stagnation and high inflation as well as a number of failed attempts to stabilize the economy, Argentina fell into hyperinflation and what was basically an economic collapse.  As hard as it is to believe by 1989 inflation had reached a shocking level of almost 5,000%.

As you can imagine 1989 was a catastrophic year for Argentina. Inflation was rising so fast that some supermarkets called out prices over the intercoms instead of constantly updating the price labels. The data from this time is quite outrageous with only 30,000 out of 30 million Argentines paying any income taxes. Chaos unfolded and society could not function as normal. Strikes and riots broke out across the country with rioters looting supermarkets.

   

Amid the anarchy, Alfonsín resigned 5 months before the end of his term. Carlos Menem then took office in July of 1989. He adopted a free-market approach that reduced the burden of government through deregulation and privatisation. Menem managed to end the period of hyperinflation by establishing a pegged exchange rate with the U.S. dollar.

Between 1990 and 1997 Argentina's economy grew by more than 6% a year, outperforming that of most other countries in Latin America. However, all was not to be well for Argentina at this time either. The country had a dramatic fall from grace. In 1999 Argentina was the poster child for “Washington Consensus” economists and policymakers. Yet within 3 years the country was in a severe economic depression. Argentina only managed to secure funding from the IMF after lengthy negotiations. By 1998 Argentina had entered a 4-year depression, which is now known as the “great depression”. During this period its economy shrank by 28%. It has been argued that Argentina’s experience poses as a perfect example of how inadequate economic policies converted an ordinary recession into a depression.