In this essay I am going to talk about the Argentinean economy crisis and its political and economic causes and consequences until the introduction of the currency board in 1991. I am going to point out why the political processes in Argentina had a
negative effect on the whole economy of this country. As from 1880 an economic upturn began in Argentina, caused by a continuously
increasing and enduring export of agricultural products which continued, interrupted by the years of World War I, until shortly after the outbreak of the Great Depression, in 1929.
Until the world economic crisis in 1929, Argentina’s economic policy was mainly focused on agrarian export, basically to Europe, Great Britain. The demand for agrarian products and raw materials by industrialized countries increased after the Great Depression – except between 1929 and 1930, when Great Britain preferred to
import products from its former colonies Canada and Australia and closed its mind towards alternative markets like Argentina’s.
In this era of Argentina’s history, when GDP grew permanently, extremely in comparison to the international average, and when foreign investors started to invest their capital, also a wave of immigrants arrived at this part of South-America. Argentina was investing in infrastructure and quickly became to the most modernized country of this continent and started the beginning of industrialization. Due to foreign investments and immigration, Argentina was able to increase the agriculturally used acreage. This situation resulted in an ongoing economical growth. By the middle of the 19th century Argentina had the biggest economy worldwide. Until 1914, 70% of the agricultural products were exported - 30% of the GDP! The WWI got Argentina’s economy into trouble as foreign investors took their capital back to invest it in the military industry. That was the beginning of the strategy of ISI (Import substitution industrialization). In 1929 Argentina became one of the biggest exporters for deep-frozen meat, corn
and other agricultural products worldwide. At this time Argentina was the richest country in the world.
A popular phrase of this time was “rich like an Argentine”
[...]
Table of Contents
1. Introduction
2. Historical Economic Context: 1880 to 1929
3. ISI Strategy and Post-War Economic Development
4. Crisis in the 1980s and the Transition to Menem’s Reforms
5. The Washington Consensus and Structural Transformations
6. The Ley de Convertibilidad and Monetary Reform
7. Conclusion
Objectives and Themes
The primary objective of this work is to analyze the economic crisis in Argentina, examining the interplay between political decision-making and economic outcomes from the late 19th century up to the implementation of the currency board in 1991.
- The historical evolution of Argentina's agricultural export model.
- The transition to Import Substitution Industrialization (ISI) strategies.
- The impact of hyperinflation and the economic collapse of 1989.
- The role of the Washington Consensus in shaping market-oriented reforms.
- The mechanisms of the 1991 currency board and its effect on monetary stability.
Excerpt from the Book
The starting point of the reforms of the Menem government was accompanied by the acute economic and political crisis of 1989. The most significant characteristics of this crisis were situations of anomy and signs of a broad economic exhaustion as well as inflation rates of up to 200% per month.
Another problem was the heavy decrease of the foreign exchange reserves of the central bank, caused by a massive capital flight and the fact that the decline of the GDP by 6,3% was the worst in the second half of the 20th century.
In times of hyperinflation, “que literalmente provocó el colapso de las finanzas públicas“, the primary objective of the new government was the stabilization of the monetary value and of the public finances.
From the beginning their measures were under the spell of the “Washington Consensus“. Williamson created this term in 1990 for “the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989.“
Summary of Chapters
1. Introduction: Outlines the scope of the essay regarding Argentina's economic and political evolution leading up to the 1991 currency board.
2. Historical Economic Context: 1880 to 1929: Describes the period of rapid growth driven by agricultural exports and the impact of the Great Depression on Argentina's dependency.
3. ISI Strategy and Post-War Economic Development: Analyzes the implementation of Import Substitution Industrialization and the influence of the IAPI institute on domestic development.
4. Crisis in the 1980s and the Transition to Menem’s Reforms: Details the economic stagnation, hyperinflation, and the transition of power leading to the Menem administration.
5. The Washington Consensus and Structural Transformations: Discusses the adoption of neoclassical economic policies and the legislative reforms implemented to privatize and deregulate the economy.
6. The Ley de Convertibilidad and Monetary Reform: Explains the stabilization efforts of 1991, including the introduction of the currency board and the pegging of the Peso to the US Dollar.
7. Conclusion: Summarizes the failure of various government policies to address stagnation, noting the ultimate negative economic outcomes.
Keywords
Argentina, Economic Crisis, Currency Board, Washington Consensus, Hyperinflation, ISI, GDP, Carlos Menem, Structural Reforms, Privatization, Domingo Cavallo, Monetary Policy, Debt, Agricultural Exports, Ley de Convertibilidad
Frequently Asked Questions
What is the central focus of this academic work?
This essay focuses on the historical economic trajectory of Argentina, exploring the political and economic drivers of its crises and the eventual implementation of the currency board in 1991.
What are the primary themes discussed in the paper?
The key themes include the agricultural export model, the shift toward Import Substitution Industrialization, the hyperinflationary crisis of the 1980s, and the market-oriented reforms during the early 1990s.
What is the main research objective of this study?
The study aims to demonstrate how specific political processes and economic strategies—often relying on foreign capital—negatively influenced the long-term stability of the Argentine economy.
Which scientific methodology is applied here?
The author uses a historical-analytical approach, synthesizing data from economic history and macroeconomic policy records to evaluate the success of various government recovery plans.
What topics are covered in the main body of the essay?
The main body covers the transition from an agrarian powerhouse to an industrializing nation, the subsequent failure of the ISI strategy, and the structural adjustment measures under the Menem government.
Which keywords best describe this research?
Core keywords include Argentina, Economic Crisis, Washington Consensus, Hyperinflation, Structural Reforms, and Currency Board.
What was the specific goal of the "Plan BB" introduced by the Menem government?
The "Plan BB" was the first stabilization attempt by the Menem administration aimed at curbing the severe hyperinflationary crisis inherited from the previous government, though it ultimately failed to provide long-term stability.
How did the "Ley de Convertibilidad" change the Argentine monetary system?
It fundamentally transformed the system by creating a "Currency Board," which legally required the central bank to back 70% of circulating Pesos with US Dollar reserves and fixed the exchange rate at a 1:1 ratio.
What impact did the "Plan Bonex" have on the economy in late 1989?
The "Plan Bonex" forced the conversion of many private deposits into government bonds, effectively fixing 60% of the money supply to drastically reduce liquid cash volume and curb hyperinflation.
- Quote paper
- Ernesto Neumann (Author), 2008, The Argentinean crisis, Munich, GRIN Verlag, https://www.grin.com/document/119043
