Crisis Prevention and Resolution: Lessons from Argentina
First Deputy Managing Director
International Monetary Fund
National Bureau Of Economic Research (NBER)
Conference on "The Argentina Crisis"
Cambridge, July 17, 2002
Anne O. Krueger
2002 2001 2000 1999
1998 1997 1996 1995
Argentina and the IMF
Brazil and the IMF
Mexico and the IMF
Russian Federation and the IMF
South Africa and the
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Mr Chairman. Ladies and Gentlemen.
I am delighted to join you here today for this important discussion of
Argentina's economic difficulties, and the challenges they pose for policymakers both in the country and at the international financial institutions. Ordinary people in Argentina are paying an enormous price for the current crisis and it is incumbent upon us in the international community to do all we can to help the country recover as quickly as possible—and to help prevent other countries from suffering a similar fate. I hope that the discussions here today can play some small part in that process.
I would like to focus on some of the lessons that Argentina's recent experience holds for the Fund's efforts at crisis prevention and resolution. Observers of financial crises are fond of recalling Tolstoy's famous remark that "all happy families resemble each other; each unhappy family is unhappy in its own way". Argentina is a case in point. It faithfully applied many of the lessons that we thought we had learned from the previous crises of the mid and late 1990s—but a combination of new mistakes and some old ones brought it to grief all the same. Thus, inevitably, we now have a new set of lessons to learn—and some old ones to remember a little better.
Let me begin by sketching out what seems to have gone wrong in Argentina, a subject that other speakers are covering in greater length and detail today. I will then draw out some of the key long-term lessons for the Fund and its members, before concluding with a brief discussion of the immediate challenges Argentina faces and the Fund's role in helping to address them.
2. What went wrong?
Argentina's fall from grace has certainly been a spectacular one.
Between 1990 and 1997 its economy outperformed that of most other countries in Latin
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Crisis Prevention and Resolution: Lessons...eger, First Deputy Managing Director, IMF
America, growing by more than 6 percent a year. Contagion from the tequila crisis in 1995 was severe, but short-lived with growth soon resuming. Argentina's performance was recognized internationally with President Menem's appearance alongside President Clinton at the 1999 annual meetings of the Fund and Bank.
Now, of course, things look very different. Most Latin American countries regained momentum after the slowdown in 1999. But Argentina descended into a protracted recession that is now in its fourth year. Real GDP is expected to decline by between 15 and
20 percent this year alone—the worst performance in the region by far. Meanwhile, the foundations of Argentina's economic strategy have collapsed beneath it, with the abandonment of the currency peg, the freezing of bank deposits, and the suspension of payments on external debt.
To trace the roots of this sad decline, we need to go back to the early 1990s. With the economy beset by recession and hyperinflation, the Convertibility Plan was introduced in
1991 into an attempt to break Argentina's inflationary psychology once and for all.
Impressively (but not without precedent for an exchange-rate based stabilization) it reduced inflation from four figures to single digits within three years, laying the