Don t Cry for Me, Argentina

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Background. Argentina has a history of chronic monetary, economic, and political problems.In 1810, it declared independence from the Spanish Government.No stable government ruled until 1862.. Background. Late 1800s: Steady growth and a booming economy due to beef exports to Europe.1890: First large economic downturn as a nation due to budgetary problems by an incompetent government. Power traded between Presidents and military dictators..
Don t Cry for Me, Argentina

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1. Don?t Cry for Me, Argentina March 18th, 2005 Presented by, Four People Who Are Not John Stiver

3. Background Late 1800s: Steady growth and a booming economy due to beef exports to Europe. 1890: First large economic downturn as a nation due to budgetary problems by an incompetent government. Power traded between Presidents and military dictators.

4. Background In 1902, Argentina followed a Gold Standard that had a 100% reserve ratio. In 1914, this was abandoned. Brought back in 1927. Abandoned in 1929. In 1945, inflation became a big problem. Unresolved political pressures resulted in the government spending more than it had taken in in taxes, causing inflation.

5. Background In the 70?s there was triple digit inflation Early 90s: President Menem stepped in with a reform He pegged the peso to the dollar Inflation quickly fell to below 4%

6. The Crisis (1999-2002) 1999: President De la R?a elected Federal budget deficit high Tax increases attempt to control it Tax rates are already substantial Caused tax evasion-related corruption 2000: Economy continues to shrink Drastic decreases in government spending causes chaos

7. The Crisis (1999-2002) Political deadlock between president and senate December 2001: freeze on bank deposits Recession turns into depression People and businesses cannot make payments IMF cuts off loans to Argentina: no outside funds Five presidents in two weeks

8. The Crisis- Statistical Data Bankruptcies reached record levels From 1998-2002: Real GDP fell 28% Inflation went from negative levels to 41% Exchange rate fell from 1 Peso/$ to 4 Pesos/$ Unemployment increased from 12.4% to 23.6% Poverty rate rose from 25.9% to 57.5% Real wages fell 23.7% in 2002 Real supermarket sales fell 26% in 2002

9. Why the Recession Did Not Happen Corruption Failure of Free Markets The Currency Board Overvalued Peso Provincial Government Finances

10. Why the Recession Happened Currency crisis in Russia and Brazil Tax Increases Lowered Confidence in the Peso Contamination of the private sector

11. What could Argentina have done differently? Fiscal: cut taxes early, accept more drastic budget cuts to avoid inflation Monetary: dollarize, allow banks to issue own notes, default on public debt early Systematic: could go strictly floating or gold standard, but disadvantages to both according to precedents

12. What to do now? Short term Dollarize now Implement tax cuts Revamp banking system to promote confidence Set floor price for default debt

13. What to do now? Long term Examine structure of law Simplify tax strategy Improve Federal-Province relationships Reduce unnecessary government spending More flexible labor laws Improve health care

14. International Policy Implications Determine comprehensive view on handling financial crises Examine US laws on foreign seizure Improve IMF recommendations Borrow / Bailout / Depreciation / Default may not work as well Property rights as related to prosperity

15. Questions??


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