The economic downfall of the Argentine market commenced in 1998, when foreign investments registered significant decreases, and fulminated in December 2001, when the state concluded that the international debt was unsustainable and defaulted it. The best method of preventing the crash, or at most limiting its disastrous effects upon the country's political and economic systems, would have been that of gradually decreasing the international value of the peso.
The International Monetary Fund should have intervened in 1998, when the downfall began, and should have attempted to reduce the negative effects of the economic boom of the early 1990s. But they didn't do this. They indeed intervened, but didn't apply the correct measures. Instead of supporting a realistic background of insurmountable debts and attempting to reduce them, the International Monetary Fund, along with other world banks, granted Argentina even more loans, only deepening the debts and increasing the gap between the financial reality and the dissonant perception of a growing economy.
The rapid growth of the 1990s throw Argentina in an economic bubble that traded high quantities of merchandise of both products and services at unfair and unrealistic prices. The bubble, also called “speculative bubble, market bubble, price bubble, financial bubble, or speculative mania” , had promoted a false economic, political and financial stability. Supported by incoming subsidies and loans from the IMF and other international financial organizations, the bubble grew bigger and bigger.
The speculative mania was close to meeting its end in 1998, but the International Monetary Fund prevented this from happening by increasing the amounts of money allocated to Argentina. But the burst could not be prevented forever, and when the economic bubble finally burst in December 2001, it had disastrous effects. In 2002, the Argentine government finally renounced the one to one peso dollar convertibility, setting the price of the United States dollar at 1. 4 pesos.
After this measure was taken, the inflation in Argentina began to decrease steadily. Argentina was at least forced to confront the reality of its economic instability and defaulted the $141 billion debt to the International Monetary Fund. “When Argentina defaulted on a 141 billion-dollar debt, it conceded its position as the IMF's poster child and the IMF suspended disbursements. ” The International Monetary Fund was severely criticized for having contributed to the Argentine market crush of 2001 by continuing its loans towards an unstable economy.
Many argued that instead of aiding the needing countries, as they promise in their mission statement, “to provide assistance to poor countries for development programs and promotion of economic stability in the global economy” , the IMF had done just the opposite and contributed to the economic downfall of Argentina. The market crush of 2001, built on a series of rush decisions made by the Argentine government, economic institutions, the International Monetary Fund and other world banks, left the country with insurmountable debts and crushed citizens that had lost not only their jobs and financial securities, but also their life savings.
This crisis caught the attention of the UN and other organizations that emphasized on the need to change the IMF's direction from being a creditor of instability towards being a loaner for development. 4. Conclusions Tormented by decades of military dictatorships and austere economic systems, Argentina believed their sorrows were over when its economy flourished in the early 1990s. The unemployment rate rapidly decreased and the living standards significantly improved. Basically, all Argentina met rapid developments in all sectors of life, from economics and finances to politics.
The downfall of this rapid growth was that it had no real foundations and it was being built of external debts to the International Monetary Fund and some other financial institutions. These institutions should have analyzed the economic, political and financial stability of the country and should have only forwarded sustainable and returnable loans. But instead of supporting a realistic economy, the IMF fueled the unrealistic idea of a growing and stable economy. Argentina had great international debts which could be neither payed back, nor explained and sustained by real economic growth.
But instead of ceasing their loans, the International Monetary Fund and other financial organizations increased their rate and kept postponing the dates schedules as paybacks. By the time it was too late and Argentina was already being confronted with the repercussions of their false growth and stability, other international organizations became interested in the country's situations. The questions asked by these other institutions brought to light the fact that most of the money received from the IMF were lost in uncompleted project or have been swifted abroad into bank accounts.
Several investigations were opened in order to get the real facts and statistics of the Argentine money laundering during the economic boom of the 1990s. The mistakes made by the institutions that kept loaning money to Argentina regarded their unawareness of the money being lost in unfinished projects and money laundering, an over-appreciated peso, a continuous inflow of financial resources that only fueled an already unsustainable debt and the strict conditions in regard to the market liberalization.
Bibliography: Wikipedia, The Free Online Encyclopedia, Argentina, April 19, 2007, https://en.wikipedia.org/wiki/Economic_bubble