Argentina's economic crisis in 2001 and the International Monetary Fund

Abstract

In a span of ten years (1991-2001), Argentina underwent a boom and bust cycle. In the early to mid 1990s, Argentina was heralded as the International Monetary Fund’s (IMF) success story in applying neoliberal policies promoted by the IMF for emerging economies. Yet by 2001, Argentina was in a deep economic crisis with unemployment approaching 20 percent, an astronomical debt that more than doubled in ten years, and a negative growth rate of 11 percent. By December 2001, the IMF determined that continued assistance to Argentina would be futile and in the same month the country defaulted on its debt.

Extensive research has been conducted in an effort to understand Argentina’s economic crisis in 2001 with the focus ranging from corruption in the Menem administration to external factors like the Brazilian crisis in 1998. This study focuses on the IMF’s role during the de la Rúa administration in 2000-01 to better understand how it affected the country’s economic crisis. I propose that the conduct of the IMF during this period suffered from two problems: (1) the absence of a coherent analysis, particularly its assessment that Argentina’s problem was due to a liquidity crisis rather than structural problems and (2) its failure to oversee the Argentine government’s decision making when the government instituted a series of policies without consulting the IMF, notably in the period between March and November 2001 and its failure to enforce sound economic policy by continuing to release funds to the Argentine government in spite of serious problems with government policies, e.g., undermining earlier banking reforms undertaken in the mid 1990s.

This conduct has been attributed to the fact that the IMF had a vested interest in Argentina avoiding a debt default and maintaining Argentina’s image as a successful example of neoliberal policies favored by the IMF, thus validating the tenets of the Washington Consensus. In addition, the IMF was concerned about political backlash against IMF advice, especially since the Argentine government had tried to comply with IMF policy advice from 1991-2001, and the IMF did not want to appear that it was withholding support from Argentina.