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Don’t Cry for Me, Argentina. March 18 th , 2005 Presented by, Four People Who Are Not John Stiver. Background. Argentina has a history of chronic monetary, economic, and political problems. In 1810, it declared independence from the Spanish Government.

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Don’t Cry for Me, Argentina

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don t cry for me argentina

Don’t Cry for Me, Argentina

March 18th, 2005

Presented by,

Four People Who Are Not John Stiver

  • 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.
  • 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.
  • 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.
  • 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%
the crisis 1999 2002
The Crisis (1999-2002)
  • 1999: President De la Rúa 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
the crisis 1999 20027
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
the crisis statistical data
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
why the recession did not happen

Why the Recession Did Not Happen


Failure of Free Markets

The Currency Board

Overvalued Peso

Provincial Government Finances

why the recession happened
Why the Recession Happened
  • Currency crisis in Russia and Brazil
  • Tax Increases
  • Lowered Confidence in the Peso
  • Contamination of the private sector
what could argentina have done differently
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
what to do now short term
What to do now?Short term
  • Dollarize now
  • Implement tax cuts
  • Revamp banking system to promote confidence
  • Set floor price for default debt
what to do now long term
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
international policy implications
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