Argentine Economic Crisis of 2001

Argentine Economic Crisis of 2001

A near collapse of the Argentine economy that began as a currency crisis. Argentina's currencies had historically seen high inflation; this inflation began to spiral out of control in the 1980s, and local vendors started to refuse local currency. In 1992, the government issued the convertible peso (ARS), which was pegged to the U.S. dollar, and the government maintained enough dollars at the central bank for people to exchange pesos for dollars on demand. This resulted in relative stability throughout the 1990s.

However, the ease of convertibility led to capital flight as people would transfer their pesos to dollars and then send them out of the country. It also made imports cheap and led to unemployment, as companies preferred to import into Argentina rather than produce items domestically. Corruption was commonplace and the government's debt increased steadily.

All of this came to a head in 2001 when investors and ordinary people began a bank run, withdrawing their pesos to convert them to dollars and take them offshore. The government responded by effectively freezing all bank accounts, only allowing small amounts to be withdrawn. This led to riots. Eventually the government defaulted on its debt and ended convertibility to the dollar. It eventually ended the peg. At first, this caused inflation and unemployment, but the devalued peso encouraged exports while discouraging imports, which promoted growth in Argentina. Economic growth returned in 2003.
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