Argentina Crisis the Argentine Crisis Thesis
- Length: 10 pages
- Sources: 5
- Subject: Economics
- Type: Thesis
- Paper: #56315423
Excerpt from Thesis :
Although the plan had its share of supporters, it failed to be implemented because of the lack of political support. As a consequence, Rodriguez Saa resigned, and was followed by Eduardo Duhalde.
Factors Contributing to the Crisis
The crisis that affected Argentina was due to a combination of factors. Also, some of the factors that determined the crisis have their roots in the previous decades, increasing their effects and combining them with the effects of newer events that were not efficiently managed.
One of the most important causes that determined the crisis is represented by the political factor. The military dictatorship that ruled the country decades before the crisis has had its significant negative impact on Argentina's economic, social, and political evolution. The public management system developed and implemented by the dictatorship has taken the country off track of a country's normal evolution towards economic development in accordance with the development of democratic countries.
The effects of the dictatorship were not counteracted even by the democratic system that followed. The country's political situation was characterized by a line of governments that failed to implement efficient measures, creating an unstable political and social environment.
These governments only succeeded at enormously increasing the country's external debt and public debt. At the same time, the state's expenditures, along with corruption, were increasing.
The main factor that determined the crisis is the country's increasing debt. The repayments of borrowed amounts of money were very tightly scheduled, not allowing the government to raise the required money (Lischinsky, 2003). The interest rates were also very high.
In addition to this, there was a reduction of capital flows to Argentina that followed the Russian crisis. While the recession and the economic uncertainty increased, and the political situation was unstable, capital flows were significantly decreasing.
Another factor of important contribution to the crisis is represented by the recurrent deficit in the current account balance. The reason behind this situation relies on the fact that interest payments were high, while imports were increasing.
As mentioned above, the state's expenditures were significantly increasing, while the income was reducing. This is because tax revenues were smaller because of the recession affecting the country's economy and its population. In order to counteract this situation and to increase the state's incomes, the government incurred dollar-denominated domestic debt.
The country's fiscal deficit was one of the factors that the country's officials considered to have contributed to, or aggravated the crisis. However, specialists in the field consider that the effects that the fiscal deficit determined were not significant enough in order to influence the emerge or the evolution of the crisis.
Privatization in Argentina
As mentioned above, during the years previous to the crisis, the government's expenditures kept increasing, while the incomes reduced more and more because of the economic recession. In addition to this, state companies were considered to be consuming too much money that the state could not afford to keep paying.
As a consequence, the state began the privatization process. The process began in 1989. In the following decade, the sate had privatized the country's oil, gas, telecommunications, power, and water companies. The process continued with the privatization of railways, subways, airports, ports, and some of the health services. The state companies were acquired by large foreign companies mainly, especially American ones.
As a consequence of the privatization of these companies, the Argentine state benefited from $23.8 billion coffers, and $19.4 billion revenues for the national government, together with $4.4 billion incomes for the provinces (Alonso, 2004).
However, these amounts of money did not make any difference for the country's population. It seems that most of the money entered the accounts of important officials, who sent the money to foreign banks. This was possible because of the irregularities in the privatization contracts, as analysts consider.
The privatization process in Argentina was also determined by the World Bank and the International Monetary Fund. The international organizations ensured the state's technical and financial support.
Deregulation of the Economy
In order to reduce recession and to orient the country's economy towards an ascending direction, or at least to stabilize the economic situation, the government focused on intensive economic deregulation.
The deregulation period in Argentina was between 1989 and 1999, during the Menem administration (Evans, 2003). The reforms were intended to create a more free market, with increased competition that would prove efficient for all the parties involved: the country's population that would benefit from a wider range of providers and lower prices, the state that would benefit from increased tax incomes, and the companies doing business in the region.
The International Monetary Fund and the Crisis
During the crisis, the World Bank and the IMF have supported Argentina with financial aids. The problem with these aids was that they required tight repay schedules and high interests that the Argentine state was not able to pay. As a consequence, the IMF delayed several dates scheduled for repay and determined the state to implement the privatization process on state companies.
The IMF's involvement in the country's crisis was severely criticized (IMF, 2003). It seems that the IMF did not correctly estimate the situation. The IMF was extremely optimistic regarding the country's growth potential, while not attributing enough significance to the country's weaknesses.
As a consequence, the program developed by the IMF in collaboration with the country's government was not a suitable one for the situation in case and its evolution. The programs supported by the IMF lacked structural content and conditionality.
The crisis that affected Argentina, its determinant factors and evolution constitute a lesson to be learned for any developing country, especially those with a profile similar to that of Argentina. The World Bank and the International Monetary Fund also drew their conclusions from handling the situation.
It is important to take into consideration the fact that the crisis in Argentina was not the immediate effect of internal or external factors, but the consequence of a military regime, associated with bad management of public resources, political instability, and inefficient monetary and fiscal policies.
The country's resources, its level of development, and its possibilities were insufficient in compensating for the public debt accumulated by a series of democratic governments that were only able to increase the level of public debt, to reduce income taxes, to increase unemployment, to significantly increase the percentage of the population living below the poverty line.
The implication of the IMF did not help either, as it determined the country's officials to implement the privatization process. Although the privatization of large state companies was intended to help create a free market that would crate advantage for the population, the process deepened the crisis, as specialists consider.
1. Argentina (2009). Central Intelligence Agency. The World Factbook. Retrieved November 17, 2009 from https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html.
2. Lischinsky, B. (2003). The Puzzle of Argentina's Debt Problem: Virtual Dollar Creation? FONDAD. Retrieved November 18, 2009 from http://www.fondad.org/uploaded/Argentina/Fondad-Argentina-Chapter6.pdf.
3. Alonso, V. (2004). Ten Years of Privatization…