The Argentine Financial Crisis

Argentina: No Magic Bullet

Officials from Argentina's Banco Bisel, a subsidiary of the French group Crédit Agricole, demonstrate outside the bank's Buenos Aires headquarters, May 21, 2002. The protesters are reflected in the shiny surface of a bass drum (Photo: AFP). 

How many more cures will it take to heal Argentina? Popular anger with the nation’s political and banking establishments has continued to escalate in the face of economic hardships of historic proportions—four years of recession and soaring unemployment, a currency free-fall, resurgence in inflation, and a crippling freeze on bank deposits since December. As interim President Eduardo Duhalde struggled in early May to win support for a new recovery plan—spearheaded by the nation’s sixth economy minister in 14 months—Argentine commentators were weighing the formidable risks if this cure, like so many before it, fails to rally the economy.

“The president lies awake in anxiety over the possibility of a social explosion...and Duhalde’s anguish, in fact, is supported by a careful reading of reality,” observed Eduardo van der Kooy in Clarín (May 5). “How can one not imagine a deluge when the unemployment figures already approach 24 percent? How can one not fear it when inflation in the first four months (of 2002) has surpassed the budget projection for the full year?”

Particularly ominous was the return in April to double-digit monthly inflation for the first time in more than a decade, with further acceleration inevitable in the wake of a 220-percent peso devaluation over the first four months of the year. “Virtually nobody is expecting inflation to fall below 80 to 90 percent this year,” the Buenos Aires Herald noted in an editorial (May 8). “Indecisive though the government might be over the delicate balance between wages and prices, it can still keep hyperinflation at bay if it resists the temptation to print its way out of trouble.”

The Duhalde administration’s proposal to convert a substantial portion of commercial bank deposits into government-backed securities foundered in the face of strong resistance from bankers and depositors, stallling progress toward normalization of access to savings and checking accounts. But Néstor Scibona, writing in La Nación (May 5), cautioned that the government’s ambivalence in pursuing economic reforms and negotiating a new loan agreement with the International Monetary Fund was undermining confidence in its capacity to stabilize the economy.

Scibona noted that an outright default on outstanding obligations to the IMF and other multilateral creditors would “make Argentina part of a tiny and discredited international club of defaulters that today includes only Congo, Liberia, and Sudan,” indefinitely foreclosing all prospects for fresh foreign credit and further prolonging the recession.

The financial crisis could precipitate one of the most sweeping realignments in Argentine history in the run-up to national elections in

independent, Buenos Aires
Buenos Aires Herald
liberal, English-language,
Buenos Aires
La Nación
conservative, Buenos Aires
Página 12
center-left, Buenos Aires

2003, wrote Miguel Bonasso in Página 12 (May 5): “The loneliness of Duhalde is not that of power but of the disintegration that increasingly threatens his administration and forecloses his political future....In consolation, one can say that the deepening of the crisis...threatens not only himself but his Peronist party as well, ever more alienated from the social base that it once represented.”