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Leading up to the Crisis

by on December 11, 2011

The Crisis

However, this was the least of Argentina’s problems.   In October 1999, Fernanado de la Rua, the UCR and Frepaso’s Aliance candidate, come out victorious by ten percent of votes over the Peronist candidate, Eduardo Duhalde.  De la Rua was to take immideate action to restore the country from the growing recession; the GDP had fallen by 3.4 percent in relation to the previous year and unemployement was at 14 percent.(Todo Argentina)    The IMF became the governments copilot in the handling of the economy after granting the country a $40 thousand million bailout.  The first step was to cut government spending and setup an attractive platform for foreign investment to return and save Argentina from furthering capital flight and prevent the default of their debt.

After the resignation of two economic ministers, Domingo Cavallo, the minister of economy from the Menem administration, was appointed in March of 2001. (BCC News)  A major problem which held back the country from progress was the pegged exchange rate of one peso to one dollar.  This prevented Argentina from competing with other exporters in various market; their prices were just too high to contend.  Cavallo began with the “competitiveness plans” and the goal of “zero deficit.”(Todo Argentina)  However, due to mass government cuts the unemployement rate continued to increase and reached 18 percent; not to mention that the poverty level was also on a rise

To make matters worse for Argentina, by August 2001, three rating had significantly lowered the countries credit ratings while salaries continued to plumit.  With hopes to recue their savings, thousands of argentines flacked to their banks and retreated $1.3 billion from their accounts,(BCC News) drastically reducing the countries dollar reserves when they needed the most.  The every next day, December first,  Cavallo announced that there would be a $250 a week maximum of dollar withdrawls; this became the infamous “corralito.”  Days later, the IMF said the Argentine measures (the drastic cuts) were not enough, and prevented the disbursement of a $1.3 billion loan to help keep the federal government, bankrupt provinces, and banks with liquidity.

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