As the recession deepened and unemployment rose, Argentinians, remembering the currency collapses of the 1980s, began to fear that their savings in pesos were at risk. The default sent shockwaves through global markets, making it impossible for Argentina to access international capital markets and forcing a chaotic devaluation once the currency board was finally abandoned.
Argentina 2001 External Sector Collapse: Roots and Impact
The Roots of the Collapse The origins of the crisis lie in the Convertibility Plan established in 1991, a policy designed to tame the hyperinflation that had plagued Argentina for decades. Sovereign Debt Crisis While the banking crisis crippled the internal economy, the external sector was simultaneously coming apart.
The country cycled through several presidents in a matter of days, reflecting the complete breakdown of the political establishment and the deep anger of the populace. This freezing of the financial system paralyzed the economy, preventing businesses from operating and individuals from making transactions.
Argentina 2001 External Sector Collapse: Roots and Impact
The Trigger: Banking Panic and Capital Flight The Run on Banks The immediate catalyst for the collapse was a loss of confidence in the banking sector. As the Brazilian real devalued in the late 1990s, making Brazilian goods cheaper and more competitive, Argentina's exports became prohibitively expensive, leading to a massive trade deficit.
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