Dimensions of the Argentine Crisis 2001/02 - A Critical Survey of Politico-Economical Explanations

When the Argentine economy collapsed in the final days of December 2001, in fact, this did not come too much as a surprise. The country had entered its fourth consecutive year of recession and skepticism about the sustainability of its economic model was widespread. However, the magnitude of the collapse was both surprising and terrifying. In 2002, Argentina's real GDP slumped by approximately eleven percent, gross fixed investment fell by 36.4 percent and private consumption by 14.4 percent. After almost an entire decade of price stability, in 2002, the inflation rate shot up to an annual 41 percent and capital flight added up to more than twelve billion U.S. dollar. This economic misery was accompanied by social unrest and political turmoil. Living standards of the majority of Argentineans had deteriorated considerably in the second half of the 1990s. In mid-2002, open unemployment stood at 21.5 percent and poverty had risen dramatically, affecting 52 percent of urban population. Even compared to the sad experiences of the various financial crises in the last decade of the 20th century, Argentina's collapse was a particularly dramatic case. In fact, Argentina had been hit by a highly complex multidimensional crisis. The sheer magnitude and complexity of the crisis prompted a wide range of economists to try to deliver explanations of what had happened and why it had happened. In principle, at least three different (though partly interrelated) interpretations of the crisis can be distinguished. Firstly, numerous authors identify the so-called ›convertibility system‹ as the main cause of the crisis. A second group of economists puts the blame on the authorities' fiscal irresponsibility. A third view emphasizes the crucial role played by the external shocks that hit the country in the course of the 1990s. These three principal strands of interpretation will be treated in the following three sections of the paper and rounded off with some final remarks