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Argentina Crash of 1982Ryan CavanaughAhmed Al Ghazali

Trent DavisBen Wildt

Before the Crash

A History of Crisis

Civil war after liberation from Spain in 1810

No stable government in place until 1862

1890-91 crisis: Stemmed from budget problems; Argentina tried to repay

national debt with fiat currency, investor flight to safety.

Argentina was on the gold standard at the outbreak of WWI (have to sell debt to fund a war), abandoned it soon after

GDP value is extremely misleading because of hyperinflation

Events during economic crash of 1982

1982 president of Junta: Leopoldo Galtieri

Invaded Falkland Islands 2nd April 1982-14th June 1982.

Coup used to appeal to masses and divert public attention off economic crisis.

1st July 1982 new president by Junta: Reynaldo Bignone until 10th December 1983.

Raul Alfonsin democratically elected president 10th December, 1983.

Fighting many guerilla wars with anti-junta groups.

Causes of crash

Growing government spending, large wage raises, inefficient production- created chronic inflation and job losses.

Loss of confidence in economy led to capital flight out of country.

August 1982-Argentina approached Mexico for debt help, Mexico going through economic troubles their self.

Went to IMF for help, once IMF visited country and witnessed all of the damage they denied help.

High foreign debt interest payments.

Tax evasion prevented new revenues from helping economy revive.

Facts

1983 inflation near 1000%

1983 Peso replace by New Peso: 10,000 old pesos=1 new Peso

Official unemployment “5%”

400,000 companies of all sizes bankrupt by 1982.

1983-2001 policies failed to reverse situation.

Attempts during recession

Attempted price controls, freezing wages, negotiating with unions.

Falklands war

Led to loss of Argentine military and suffered heavy causalities.

Used war to divert attention from economy onto a popular Argentine subject eventually leading to death of military Junta and new democratic Government.

Main Theory:Growth of State Debt

1973-1982 increase of public expenditure Deficits averaged 5.2% of GDP Financed through international borrowing

Eroded real savings and private investment Most of the debt was not registered

1983 Argentina had the highest inflation rate in the world

Crowding Out

Real savings and private investment plummeted leading up to 1982 Capital outflows

Steps Taken 1983-1989

IMF Agreement committed the military government to limiting fiscal deficit to 2.1% Actual figure for the year was 16.8%

1985, Raúl Alfonsín introduces Plan Austral

1987, Plan Austral begins to fail

Another IMF arrangement made in 1987 but fails in 1988

Steps Taken 1989-1994

President Carlos Menem is elected in May 1989

Appointed Domingo Cavallo in 1991

Set up free-market reforms such as opening trade, deregulating, and reforming the state

April 1991, Convertibility law pegged exchange rate between Peso and US Dollar

Effects of Policies

Inflation went from 1,344% annually in 1990 to 29% for a portion of 1991 and finally to a rate of 4% in 1994

Bimonetary system where people used US Dollars freely

Real GDP per person grew more then 10% between 1991 and 1992 then slowed to above 4% in 1993 and 1994

Increases in foreign investment

Works Cited

Remmer, K. L. (1990 ). Democracy and Economic Crisis: The Latin American Experience . World Politics , 315-335.

Saxton, J. (2003 ). Argentina's Economic Crisis: Causes and Cures. Hispanic Center for Economic Research .

The Economist . (2002, February 28th ). Retrieved April 19th, 2015 , from www.economist.com: http://www.economist.com/node/1010911

http://www.hacer.org/pdf/Schuler.pdf

"AROUND THE WORLD; Argentina's Inflation Skyrockets to 924%." NYtimes. October 12, 1983. <http://www.nytimes.com/1983/10/12/world/around-the-world-argentina-s-inflation-skyrockets-to-924.html.>

Marsh, Sarah. "Chronology: Argentina's Turbulent History of Economic Crises." Reuters. July 30, 2014. <http://www.reuters.com/article/2014/07/30/us-argentina-debt-chronology-idUSKBN0FZ23N20140730.>

Saxton, Jim. "ARGETINA’S ECONOMIC CRISIS: CAUSES AND CURES." Hispanic American Center for Economic Research. June 1, 2003. <http://www.hacer.org/pdf/Schuler.pdf.>

Smitha, Frank E. "Financial Crisis in Argentina, from the 1980s." Macrohistory and World Timeline. January 1, 2010. <http://www.fsmitha.com/h2/ch37-crises.htm.>