|
The crisis
Main article: Argentine economic crisis (1999-2002)
In 1999, following the 1998 international crisis, GDP fell by 3% and Argentina entered fully into recession. President Fernando de la Rúa, who took office in December 1999 following the 10-year administration of Carlos Menem, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP. The new government also arranged a new $7,400 million stand-by facility with the International Monetary Fund for contingency purposes — almost three times the size of the previous arrangement. The new government passed laws intended to change the country's labour code, and attempted to address the precarious financial situation of several highly indebted provinces.
The issue of Argentina's massive public debt became a subject of considerable controversy, and increased tension between Argentine governments and the IMF. In 2001, capital flight increased, and the government found itself unable to meet debt payments. The crisis exploded after the corralito (an almost complete freezing of bank deposits) caused massive protests. After the December 2001 riots, President De la Rúa resigned.
On December 23, 2001, interim president Adolfo Rodríguez Saá declared a short-lived debt moratorium. After a few days, Argentina officially defaulted on $93 billion of its debt.
In January 2002, the convertibility plan that pegged the Argentine peso to the U.S. dollar on a one-to-one basis was scrapped, after nearly 11 years. The peso was floated and suffered a swift and sharp devaluation (losing about 75% of its value), which in turn triggered a surge in inflation.
The poverty rate of Argentina grew from an already high 35.9% in May 2001 to a peak of 57.5% in October 2002; the last official report is 23% for the first semester of 2007, which means the country has just returned to pre-crisis levels.
The country has seen double-digit unemployment since the mid-1990s until the 4th quarter of 2006, peaking at 18.4% mid-year 1995. The May 2000 unemployment rate was 15.4%; it climbed to 18.3% in December 2001, and by the 4th quarter of 2006 it was around 8.7%.
In 2002, Argentina's GNP sunk by 10.9% with respect to the previous year. Soon, however, the country managed to return to growth, with surprising strength: 8.9% in 2003, 9.0% in 2004 and then again 9.2% in 2005. This was initially due to a surge in exports (over all previous historical records), and then also to the return of local and international confidence, which boosted local consumption and both local and foreign investment.
Debt restructuring and the role of the IMF
In a speech before the United Nations General Assembly in May 2004, President Kirchner asked for "a structural redesign of the International Monetary Fund", which has changed "from being a lender for development to a creditor demanding privileges".
Shortly after, at the meeting of the IMF and the World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned Kirchner that Argentina must come to a debt-restructuring agreement, increase its primary budget surplus to pay more debt, and impose "structural reforms" to regain the trust of the world financial community.
The debt restructuring process was long and complex. Argentina offered a steep discount on its obligations (approximately 70%) and finally settled the matter with over 76% of its defaulted creditors (the default did not include the IMF, which has continued to be paid in due time).
In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9.8 billion. The payment was partly financed by Venezuela, who bought Argentine bonds for $1,600 million. <3>
In 2006, Argentina reentered international debt markets selling US$ 500 million of its Bonar V five year dollar denominated bonds, with a yield of 8.36%, mostly to foreign banks and Moody's boosted Argentina's debt rating to B from B-. <4>. However, the reliance of Argentina on Venezuela for a large portion of its financing needs has not been well received in Wall Street circles. On July 18, 2006 Goldman Sachs Emerging Markets Research noted: "Instead of trying to restore its credibility with the broad capital markets, the government keeps on relying on Venezuela as its main credit supplier" (as quoted in the Wall Street Journal on July 28, 2006). The total amount of Argentina's debt held by Venezuela is estimated at around US$ 4 billion. <5>
Economic expansion
With a high rated dollar in comparison with the local currency that allowed to produce goods with competitive prices in the international market, some industries in Argentina started re-flourishing after the crisis, mainly the construction (40% increase in 2005), textiles, food and car parts. The increment in the volume of exportations and their assossiated taxes also provided the country a positive balance of trade, cash flow and reserves.
The crisis
Main article: Argentine economic crisis (1999-2002)
In 1999, following the 1998 international crisis, GDP fell by 3% and Argentina entered fully into recession. President Fernando de la Rúa, who took office in December 1999 following the 10-year administration of Carlos Menem, sponsored tax increases and spending cuts to reduce the deficit, which had ballooned to 2.5% of GDP. The new government also arranged a new $7,400 million stand-by facility with the International Monetary Fund for contingency purposes — almost three times the size of the previous arrangement. The new government passed laws intended to change the country's labour code, and attempted to address the precarious financial situation of several highly indebted provinces.
The issue of Argentina's massive public debt became a subject of considerable controversy, and increased tension between Argentine governments and the IMF. In 2001, capital flight increased, and the government found itself unable to meet debt payments. The crisis exploded after the corralito (an almost complete freezing of bank deposits) caused massive protests. After the December 2001 riots, President De la Rúa resigned.
On December 23, 2001, interim president Adolfo Rodríguez Saá declared a short-lived debt moratorium. After a few days, Argentina officially defaulted on $93 billion of its debt.
In January 2002, the convertibility plan that pegged the Argentine peso to the U.S. dollar on a one-to-one basis was scrapped, after nearly 11 years. The peso was floated and suffered a swift and sharp devaluation (losing about 75% of its value), which in turn triggered a surge in inflation.
The poverty rate of Argentina grew from an already high 35.9% in May 2001 to a peak of 57.5% in October 2002; the last official report is 23% for the first semester of 2007, which means the country has just returned to pre-crisis levels.
The country has seen double-digit unemployment since the mid-1990s until the 4th quarter of 2006, peaking at 18.4% mid-year 1995. The May 2000 unemployment rate was 15.4%; it climbed to 18.3% in December 2001, and by the 4th quarter of 2006 it was around 8.7%.
In 2002, Argentina's GNP sunk by 10.9% with respect to the previous year. Soon, however, the country managed to return to growth, with surprising strength: 8.9% in 2003, 9.0% in 2004 and then again 9.2% in 2005. This was initially due to a surge in exports (over all previous historical records), and then also to the return of local and international confidence, which boosted local consumption and both local and foreign investment.
Debt restructuring and the role of the IMF
In a speech before the United Nations General Assembly in May 2004, President Kirchner asked for "a structural redesign of the International Monetary Fund", which has changed "from being a lender for development to a creditor demanding privileges".
Shortly after, at the meeting of the IMF and the World Bank, leaders of the IMF, the European Union, the Group of Seven industrialised nations, and the Institute of International Finance (IIF), warned Kirchner that Argentina must come to a debt-restructuring agreement, increase its primary budget surplus to pay more debt, and impose "structural reforms" to regain the trust of the world financial community.
The debt restructuring process was long and complex. Argentina offered a steep discount on its obligations (approximately 70%) and finally settled the matter with over 76% of its defaulted creditors (the default did not include the IMF, which has continued to be paid in due time).
In December 2005, Kirchner decided to liquidate the Argentine debt to the IMF in a single payment, without refinancing, for a total of $9.8 billion. The payment was partly financed by Venezuela, who bought Argentine bonds for $1,600 million. <3>
In 2006, Argentina reentered international debt markets selling US$ 500 million of its Bonar V five year dollar denominated bonds, with a yield of 8.36%, mostly to foreign banks and Moody's boosted Argentina's debt rating to B from B-. <4>. However, the reliance of Argentina on Venezuela for a large portion of its financing needs has not been well received in Wall Street circles. On July 18, 2006 Goldman Sachs Emerging Markets Research noted: "Instead of trying to restore its credibility with the broad capital markets, the government keeps on relying on Venezuela as its main credit supplier" (as quoted in the Wall Street Journal on July 28, 2006). The total amount of Argentina's debt held by Venezuela is estimated at around US$ 4 billion. <5>
Economic expansion
With a high rated dollar in comparison with the local currency that allowed to produce goods with competitive prices in the international market, some industries in Argentina started re-flourishing after the crisis, mainly the construction (40% increase in 2005), textiles, food and car parts. The increment in the volume of exportations and their assossiated taxes also provided the country a positive balance of trade, cash flow and reserves.
According to the Heritage Foundation, a Washington-based conservative think tank, the state's role in the economy has expanded since the start of the Kirchner administration, primarily through price fixing in some industries and the creation of a state-owned airline and a state-owned energy company. The Heritage Foundation assigns Argentina a score of 3.3 (mostly unfree) in economic freedom on a scale of 1 to 5 of, which places the country in the 109th position of the 157 evaluated at the Index of Economic Freedom.
Banking
|
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
