Marketing Assignment: The 1998-2002 Argentina Currency Crisis

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The 1998-2002 Argentina currency Crisis
Introduction
The Argentina currency crisis is one of the major economic crises to be ever experienced in the nineteenth century. It resulted in a serious banking crisis which also affected Paraguay, leading to the closure of its third largest bank. Other banks in Europe and the US such as Citigroup also incurred huge losses due to the bankruptcy of the banks’ debtors (Wiel).
Chronicle of Events
The economic growth rate in 1998 was negative due to the currency crises in Russia and Brazil which were followed by a recession towards the end of the year.
Towards the end of 1999, Argentina elects a president who promises to end the recession. At that time, there was a high federal budget deficit and attempts to increase tax so as to regulate the deficit were not yielding tangible results.
In 2000, Argentina is extended a loan worth 7.2 billion US dollars by the IMF. During the same year, the government increases the tax rates, which leads to tax evasion for more than 30 percent of the total financial transactions. The country’s economy continues to decline, and the then minister of economy resigns.
In 2001the newly appointed minister of economy introduces a bill that proposes the change of exchange rate link to a 50-50 link of the peso with both the dollar and the euro which is approved by the congress a few months later. In the same year, the minister of the economy makes changes on the exchange rate for exports. The country also experiences a political deadlock, and the president is unable to receive approvals on reforms. Towards the end of the year, the country experiences bank run and the economy minister announces bank deposit freeze. This is closely followed by IMF cutting off external loan lending to the country. The country also experiences a general strike and eventually both the president and minister of economy resign from office.
In 2002, a new president is appointed by the congress. The government brings to an end the convertibility system and the country’s currency devalues to 1.40 dollars. In addition, the government suspends bankruptcy proceedings and penalizes employers who lay off employees by twice the initial amount. The congress passes a law that enforces the legal basis of deposit freeze on April. Towards the end of the year, Argentina defaults on a loan extended to them by the World Bank. The deposit freeze for saving accounts is also remove...