Argentine Peso Currency Crisis 2001-2002 Team IV Aliya Riddle Andrew Kenna Steve Roszak. Chronology of Major Events.
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April 1, 1991 Congress enacts the Convertibility Law. The law pegs the Argentine peso to the American dollar at a one-to-one ratio. The government can not issue pesos without the backing of foreign reserves.
1995-1999 The U.S. Dollar experiences a real appreciation. This also causes the Argentine peso to appreciate relative to trading competitors. The peso becomes overvalued.
July 1997 East Asian financial crisis begins.
1998 Financial crisis moves to Russia and then Brazil.
1999 Brazil devalues their currency, hurting Argentina’s competitiveness in export markets.
1999 – 2001 Excessive government deficits lead to large debt borrowing.
December 7, 2001 Argentina announces that they can no longer guarantee payments on foreign debt. The suspension of payments on $142 billion foreign debt marks the largest default in history.
January 6, 2002 Argentina announces the end of the currency peg. The government announces plans to devalue the peso by 29%.
January 15, 2002 The peso falls as low as 2.05 to the dollar in active trading.
March 17, 2005 Exchange rate of 3.3 Pesos/$
What Went Wrong?
Excessive spending made it difficult to meet debt payments.
1.) The peg cured hyperinflation of the late 1980’s. If the peg was abandoned, Argentina may have lost price stability.
2.) Much of the country’s debt was in dollar-denominated amounts. If the peso had devalued then the peso size of the debt would have increased. This could have lead to bankruptcies.
3.) They expected the dollar to devalue to more competitive rates. Hoped problems would reverse themselves.