Argentina's Market Crash

The Argentine Republic is the second largest South American country and the eight largest country in the world. As a political country, Argentina is a federal presidential representative democratic republic with power divided between the executive, the legislative and the judiciary sectors. Internationally, the republic is acknowledged as a constant advocate for peace, participating in numerous campaigns. These actions have determined United States President Bill Clinton to name Argentina a major non-NATO ally.

In 2005, the country was elected temporary member of the UN Security Council. Argentina's history has been deeply market by periods of dictatorship and military rulers that severely damaged the country's economy. In 1983, at the end of the dictatorship reign, Argentina had tremendous international debts which the country was unable to pay back. The country's aid in this critical situation came from the International Monetary Fund and other monetary institutions, international banks and creditors.

The IMF and other world banks forwarded substantial loans to Argentina in the attempt to support their economy. The financial subsidies and loans received from the International Monetary Fund turned Argentina into the “poster child of neoliberalism. ”  But this title demanded some prices. As such, Argentina had to renounce most of its prior economic policies and agree to the full liberalization of its market in complete accordance with the IMF regulations.

Initially, the Argentine economy flourished under the new rules, but the incoming loans only increased the country's debts and eventually led to one of the biggest market crashes in modern day history, the market crash of 2001. 2. Economic background In 1989, Argentina President Carlos Menem imposed a program of economic austerity, and the following year reestablished diplomatic relationships with the United Kingdom. He was among the first presidents of a democratic Argentina.

His governance programs regarded a debt reduction and the formation of a stable economy in the country, with increased focus on replacing the former currency Austral, with a new and stronger currency, which would be named peso. The beginning of the twenty century was a prosperous time for the Argentine politics and economy. An article posted on the Global Exchange website wrote that during the 1990s, the South American country “become a dream for international investors as the International Monetary Fund guided Argentina toward a free market economy.

” In 1991, president Carlos Menem and his government commenced an excruciating battle against inflation. But the measures initially taken by the governance proved inefficient and only brought about the necessity to engage in more extreme actions. As such, Minister of Economy Domingo Cavallo introduced a new Argentine currency, the peso. The new currency equaled 10,000 units of the old one and had a value of one United States dollar (1 peso = 10,000 australes = 1 U. S. dollar).

Argentina inhabitants were first reticent to the new currency, but once it was legally established at the value of one dollar, it had beneficial effects. For starters, and probably the most important, the inflation levels significantly dropped. Then, the beneficial effects of the peso dollar convertibility also regarded a price security which led to increased standards of living ”for many citizens who could now afford to travel abroad, buy imported domestic appliances and electronic products or ask for credits in dollars at very low interest rates. ”

This was a dream come true; Argentine was met with flourishing economy that, to inhabitants' satisfaction, generated a significant increase in the number of available jobs, a decrease in the unemployment rate and apparently sustained increased standards of living. But in return for the loans received from the International Monetary Fund and other world banks, as well as in return for the continuously delayed and postponed return dates, Argentina was obliged to follow the rules imposed by its creditors in the form of Structural Adjustment Programs (SAPs).

“ SAP’s push countries to “develop” by tearing down trade and investment barriers, privatizing public services and national industries, weakening labor laws and cutting social programs in order to attract more foreign investment. ” In addition, pegging the national currency peso at the value of one U. S. dollar, extensive privatizations and the replacement of small and medium size with international corporations, sustained by the increasing debts, throw Argentina in the late 1990's towards a political and economic crisis of tremendous proportions.