Travel Reference
In-Depth Information
The Economic Crisis
As an economic slowdown deepened into a recession, voters turned to the mayor of Buenos
Aires, Fernando de la Rúa, and elected him president in 1999. He was faced with the need
to cut public spending and hike taxes during the recession.
The economy stagnated further, investors panicked, the bond market teetered on the
brink of oblivion and the country seemed unable to service its increasingly heavy interna-
tional debt. Cavallo was brought back in as the economic minister and in January 2001,
rather than declaring a debt default, he sought over US$20 million more in loans from the
IMF.
Argentina had been living on credit and it could no longer sustain its lifestyle. The
facade of a successful economy had been ripped away, and the indebted, weak inner work-
ings were exposed. As the storm clouds gathered, there was a run on the banks. Between
July and November, Argentines withdrew around US$20 billion, hiding it under their mat-
tresses or sending it abroad. In a last-ditch effort to keep money in the country, the govern-
ment imposed a limit of US$1000 a month on bank withdrawals. Called the
corralito
(little
corral), the strategy crushed many informal sectors of the economy that function on cash
(taxis, food markets), and rioters and looters inevitably took to the streets. As the govern-
ment tried to hoard the remaining hard currency, all bank savings were converted to pesos
and any remaining trust in the government was broken. Middle-class protesters joined the
fray in a series of pot-and-pan-banging protests, and both Cavallo and de la Rúa bowed to
the inevitable and resigned.
Two new presidents came and went in the same week and the world's greatest default on
public debt was declared. The third presidential successor, former Buenos Aires province
governor Eduardo Duhalde, was able to hold onto power. In order to have more flexibility,
he dismantled the currency-board system that had pegged the peso to the American dollar
for a decade. The peso devalued rapidly and people's savings were reduced to a fraction of
their earlier value. In January 2002 the banks were only open for a total of six days and
confidence in the government was virtually nonexistent. The economy ceased to function:
cash became scarce, imports stopped and demand for nonessential items flat-lined. More
than half of the fiercely proud Argentine people found themselves below the national
poverty line: the once comfortable middle class woke up in the lower classes and the
former lower classes were plunged into destitution. Businesspeople ate at soup kitchens
and homelessness became rampant.
