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bank accounts, only allowing small amounts to be withdrawn.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.