Argentine Debt Crisis

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Argentine Debt Crisis


The economic crisis is the imbalance between supply and demand for goods and services, which causes a depression in the country’s economic system. The Argentine economic crisis has appeared as the phase of an economic cycle and the form of resolution of the contradictions that have accumulated in the previous period. The crisis of the Argentine economy has been caused by the adverse factors that have affected the society, economy, and politics, and have engendered a gradual revival. The deep Argentine economic crisis has given new impetus to its recovery.

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Main Reasons

The crisis occurred due to several reasons: inappropriate fiscal policies, political instability, the inflexibility of wages and prices that cannot be combined with a fixed exchange rate of the national currency, and severe external shocks. The overall impact of these factors on the economic outcome of all events in Argentina was destructive.

The twin inconsistency of fiscal policy arose because of the public expenditure growth in US dollars exceeding the GDP growth corrected by tradable goods. Moreover, the crisis was exacerbated by weak growth in the primary surplus of the federal and regional budgets that did not allow the easing of the financial burden of rising public debt, as well as the phasing out of preferential interest rates (“Argentina economic crisis documentary”). The problem of inflexibility was associated with lack of participation of the Argentine economy in international trade. The position of the country deteriorated due to the fact that the main foreign trading partners of Argentina devalued their currencies. The coalition government weakened banks’ lending reserves, ignored budget constraints, intervened in the activities of pension funds, and caused forced freezing of bank accounts, devaluation, and consequential default.

Impact on Economy, Politics, and Society

Economic, political and social consequences were closely linked to each other and affected the economic behavior of the Argentinians reacting to the actions of politicians and following economic results. Economic fluctuations were aggravated by political failures that affected social changes.

Government spending in Argentina increased by 77 % in dollar terms, while the country’s GDP increased by 57 % over the same period and the dollar prices of commodities fell (“Argentina economic crisis documentary”). Apparently, the “expansion” policy in public spending that was financed mainly by foreign loans contributed to the overvaluation of the real exchange rate. In fact, the Argentine government spent money as if extremely favorable prices for export commodities could be maintained indefinitely. The subsequent sharp fall revealed the weakness of the Argentine fiscal policy. The balance of the consolidated budget showed a deficit of nearly 6 % of GDP. The labor market was adequately flexible and there was an additional burden of taxation. Due to the repayments of loans, there were 1.4 million pensions unpaid. The severe economic downturn caused mass riots across the country. The government banned the increased tariffs on utility services.

Main Participants

The main political participants were the President of Argentina, the Congress, ministers, the International Monetary Fund, financial agencies, and social forces. These individuals and groups with different powers were involved in the crisis events at different stages.

The name of the President de la R was connected with the inability of political forces to eliminate the influence of crisis and inadequate directions of the state to avoid serious in-depth consequences. Credit agencies announced a low credit rating of Argentina in the financial markets. Although Congress cut the wages of the civil servants, the citizens struggled because of high unemployment and a huge gap between the income levels of different social groups.

The International Monetary Fund refused the provision of $ 1.3 billion tranches to Argentina. Therefore, the government used pension funds for confiscation. Financial institutions were not able to pay the deposits and deal with credit transactions. The parliament was unsuccessful in the implementation of the programs dedicated to economic recovery. The Minister of Economy and the President resigned. Mass disorders and riots were accompanied by pillages.


The recovery of the Argentine economy was caused by the emergence of new political forces, namely Nestor Kirchner, the founder of the distinguished economic direction (Levitsky and Murillo 16). The restoration of the Argentine economy was not easy despite some recovery in economic activity. The restructuring of key institutions and the restoration of their credibility required substantial political reforms. The presence of strong fiscal institutions was the foundation of economic stability, while their creation was preceded by the decisions in the monetary area. Inefficient fiscal policy has been transformed to its maximum compatibility with a stable monetary regime.

After-crisis Argentina largely corresponded to the classical model of “Peronism” (Mitchell). The main features of this model are major investments in public works, the creation of governmental funds for the financing of public services and infrastructure, the policy of import substitution through support for strategic industries, etc. The president also considered a return to a fully government-funded pension system.

The economic recovery of Argentina was based on three factors. The first factor was a strong devaluation of the peso that considerably lost its value against the foreign currency such as the dollar. That made Argentine exportable, especially for such products as soybeans, crude oil, and certain types of industrial raw materials. The second factor was the intensified use of the early accumulated fixed capital. Finally, the third factor was the revival of a number of industries that produce goods for daily consumption as a result of the processes of import substitution. The development of these industries was funded by the dollars that Argentina held of its banking system.

To sum up, the economic crisis in Argentina was caused by political, financial, external, economic and other factors. The inability of politicians to manage the internal resources and to transform trading operations in advance of the national system resulted in the national debt and failures of financial and social subsystems. Participants in the Argentine economic crisis made inadequate attempts to manage the negative consequences of this phenomenon. The following recovery changed the pace of economic movement of Argentina through the hard gradual measures of new reformers.

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