Argentina 01

Argentina 01 - Financial Crisis Output/employment/...

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Unformatted text preview: Financial Crisis Output/employment/ fiscal/trade effects. Risk of default. Effects on future K- inflows. Banking sector issues. Social costs . ' Contagion effects Default in Open Economies With K-Inflows - Imports disrupted — Large Effects on Firms ° Inputs availability affect input miX and production mix. ° Financial Issues. - Politicalbackslash against free market and free trade. Argentina Some History Rich Natural Resources High Human Capital Reasonable Infrastructure Great Performer in early 1900’s. ClOsed economy/populist policies 1945—55 Fiscal Problems, High Inflation, Macro Instability 70-80’s Reforms in the 90’s - Opening, Privatization, Financial Reform ° Currency Board (Convertibility Law 1991) — Fixed Peso/US dollar exchange rate — Pesos issued had to be backed by dollar reserves (fiscal discipline) - Results: — End of Inflation — Great Performance 90—98 1999-2001 Deterioration and Crisis: What Went Wrong? Combination: - External Shocks — Peso overvaluation relative to currencies of largest trading partners (from external shocks+currency board) - Fiscal dynamics (too weak during upswing, problem of provincial budgets, political issues) - Debt dynamics (unsustainable nature was not addressed - Self Fulfillment Pessimism? External Shocks - Mexico Crisis 1995 (Argentina recovered) ° Asian Crisis 1997 (1 terms of trade) - Russian Crisis 1998 (K-flows dried out) - Brazilian devaluation January 1999 - Euro depreciation against dollar 2000 - World recession 2001 Country risk ok until January 1999 (similar to Mexico) Fiscal issues/Debt Circumvention of currency board implicit fiscal discipline through the issuance of quasi-moneys by both provinces and federal government. Interest payment Brady Bonds negotiated in 90’s (T interest rate increased cost of servicing foreign debt). I After Russian crisis: T interest rate in new debt Declining tax revenues, T debt Attempts to collect more (T taxes in midst of recession) may have backfired ‘ 1999-2001 Declining output increasing unemployment K-outflows Decrease in reserves Decrease in deposits in banking system December ZOOl/J an 2002 December 2001: Frozen Deposits (corralito) PolitiCal Crisis - Change of 4 presidents ° Riots, middle class protests ° Society’s negative View of politicians T Default g Devaluation/ Currency board abandoned Pesiflcation IMF wants to see a feasible plan before granting loans Output Growth : One Aggregate indicator LATIN AMERICA AND THE CARIBBEAN: GROSS DOMESflC PRODUCTa (Percentage variation with respect to me same quaner of previus year) 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: ECLAC. on the basis of official figures. ' Includes Argentina, Brazil. Chile. Colombia. Mexico, Peru and Venezuela. LATIN AMERICA AND THE CARIBBEAN: STOCK-MARKET PRICES AND CAPITAL INFLOWS 800 2 E 5 600 1: "5 (D 5 400 E 200 O Source: ECLAC. on the basis of figures from the International Monetary Fund and the international Finance Corporation. 0015786 I S99mm GDP growth >_Foo~ =_Foo~ __Foo~ _.oo~ A.v.oow vvooom mam? mom? nmaw mmwr camp vmmv mam? Nmmr REAL BILATERAL EXCHANGE RATE Brazil-Argentina (Base year 1995= 100) 180 160 140 120 100 ’ so i 60.' in millions of dOllars 60.000 T 52.000 — 44.000 i 36.000 01 -Feb-01 ' --Private Sector's Deposits (left scale) 17400 ‘ 31 Aug IMF lent 4000 millions to support financial system. —Gold and foreign currency + liquidity requirements abroad (right scale) Source: Centro de Economia Aplicada -UCEMA en base a datos del BCRA. PVT‘FV’FF‘Fi—i—FPFFFFFFFFFFF ?°.?9‘?‘?99°.99?°.9999°.9°.?9°. nahhhbh>~>>cc--—ooaaa~~“ 00WNN-D-Dmmmasgggmmwmo‘o’88 “rLtE-E-E-‘Ffi5.§.$77usobo'$<¥‘?“2‘?u3éé mmrxoacn“ N10 «3 m PNOPNPNSSSFNOFmggogmoF” International Reserves and Total Deposits of Non Financial Private Sector ——fi— 36000 Frozen Deposits "Corralito" _ 32000 Devaluatlon T of Peso and Dedollarization ' ‘I» 28000 124000 20000 13774 8Ma l 16000 15017 3Dic 12000 39.340 8Mar I 8000 ‘- F 1- 1- ‘- N N N N N N C.’ C.’ O. C.’ C? C.’ 9 9 0. °. C.’ 6522-9822885 Z. 2. D- 9 9 ll! “.4 us 4 an E. e a 3 3 R s a 5 s a 8 ...
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Argentina 01 - Financial Crisis Output/employment/...

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