Dr Tori Knight
Argentina, from the top to the bottom
In this essay, I explore the Argentine economy, first targeting its ups and downs from the
1975 and on, going through the economic crisis of the early 1980s that submerged the country in
hyperinflation leading to a currency change from “Peso Argentino” to “Austral” during the
government of Raul Alfonsin. The second hyperinflation that forced the country to change the
currency back to “Pesos” during the government of Carlos Saul Menem. And second, the crisis of
2001/2002 and the responses of the Kirchner government post-crisis.
To begin, I will give a broad overview of what Argentina was (from an economic and social
standpoint) during the colonial and post-colonial era.
The time between 1860 and 1930 was called the golden ages of Argentina, these seventy
years of growth, modernization, and relatively stable politic environment, took millions of immigrants
from Europe to Argentina in hope of a better life. There were thousands of kilometres of railroads
which connected the fertile land of the Pampa with the ports of Buenos Aires and allowed for export
of goods, which at the time were mainly meat, leather, and other agricultural products all sent to
Europe and the world. Buenos Aires grew into a big metropolis with beautiful buildings, theatres and
culture all around, for these, until now Buenos Aires is called the Paris of South America. And even
though the beautiful buildings, fancy theatres and big avenues are still standing in the city to these
days, the economic prosperity years are not anymore. The great depression of 1930 along with the
world war, changed the world economic environment, with this, the level of exports (the basic
promoter of the Argentine economic growth) stagnated and the country moved towards its first fall.
As the export of raw goods like beans, wheat, meat and leather was declining because of a price fall,
the country was forced to move towards industrialization, which gave the country some room for
growth again. World war II was undergoing in Europe, this made that the industrialized products that
they provided to South American countries stop to come and Argentina’s industrial production served
as replacement to supply the less developed countries of South America, changing the main source of
growth from the traditional export of goods at an intercontinental market to an industrial and more
The beginning of the republic was one of shining ages, the country grew exponentially in
production and infrastructure to come to stagnation and crisis. Argentina underwent ups and downs in
political matter as well as economic since the 1930s. It was ruled by military dictatorships that were
stepping up and down from the administration of the country, causing a lot of instability. From 1955
when president Juan Domingo Peron stepped down from the government until he came back on
October 1973, there were ten different presidents, out of which five were Military governments.
Since the 1950s the country had adopted an economical model of self-sufficiency. President
Peron “promoted” the national industry to produce most of the goods it needed by “protecting” it with
severe restrictions to import, but the production processes they used stayed in the past to become
obsolete compared to the ones of other nations. This outdated production was of far inferior quality
than the production abroad, and the country suffered from this when it reopened to international
As the national industrial production became outdated, the dependence for imported goods
grew. And of course, other countries depended less and less of the Argentinian production, so much
that at mid-1960s not even 1% of the industrial production was exported. The country needed to move
towards more complex productions, like vehicles, telecommunication or heavy machinery, but the
local infrastructure was considerably behind the needed to produce these goods, so the solution was to
bring foreign companies to produce them in the country. President Peron dictated a law promoting
foreign investment in 1953 that brought several automotive, technology, and food companies to invest
in the country. Producing these goods in Argentina was more expensive and less efficient than
producing those abroad, for which the government needed to step in with protectionist policies that
were referred to as developmentalism.
Public expenditure was growing significantly, and this created a budget deficit that between
1973-75 reached an average of ten percent of the nation’s income, which was largely funded with
printing more money, and with help of the IMF (International Monetary Fund). Ten help packages
from IMF were implemented in Argentina from 1954 to 1980, making the country the most regular
client in South America. Accompanied of this growing public deficit, inflation was escalating. From
low 20s to over 180 percent between 1974-75. From this point and on the country’s economical
situation just went down giving birth to the first big economical disaster that will be discussed here.
In the middle of this inflationary time and of great deficit that military power took the
government of the country in 1976, to begin a reorganization process that intended to reduce inflation
and stabilize the economy back. This military government got to mask the bad situation for about two
years, but the growing deficit of public companies and the rising amounts of external debt that the
country had were in the end stronger. One of the new things that this administration brought was the
reduction of the tariff in import products, which used to be ridiculously high because of the
protectionist policies of the national industry. With the imports tariff reduction, the Argentinian
market was again reachable for international companies. Here again, the poor national production
suffered to compete with the imported products. Accompanied of a strong manipulation of the
currency exchange market, the liberalization was untenable, and the country submerged in the deep
crisis that begun 1981.
Workers of national companies started to mobilize in protest of the imports openings that
caused several national companies to close:
Traditional local producers in textiles, clothing, metallurgy and machinery became
losers of unfettered financial deregulation and trade liberalisation. Small and
medium sized enterprises (SMEs) especially could not compete with cheap imports
and were exposed to negative externalities of interest rates and exchange rate
appreciation. […] The historic skill gap of labour was deepened due to skill-based
technological change which favoured capital intensive and natural resource sectors
with low and medium labour intensity (Gezmis, 2015, p. 83)
Unemployment grew exponentially, interest rates were high and so was the anxiety of the population.
Under these social pressures, the president Viola had to resign his position and was substituted by
Leopoldo Galtieri, who was an army official that repressed the populist movements and attempted to
reunite the population under one nationalist cause: to recover the Falkland Islands. This attempt took
the country to a war with Great Brittain in 1982 ending in a humiliating surrender of the Argentinian
troops after two months of armed conflict.
The country increased greatly its external debt with the war reaching over $40 billion,
inflation was escalating to over 20 percent monthly and the people were just feeling humiliated.
Under this situation, R. Alfonsin won the elections and took the power in 1983. Alfonsin, with his
minister of economy Juan Vital Sourrouille, created the “Austral Plan”. Austral was the name of the
currency that would replace the Argentine Peso, to an exchange rate of 1000 pesos per Austral. The
plan not only contemplated a currency exchange but was a lot more ambitious than that. It included
strong structural reforms like, finally making the central bank an independent institution, one of the
basic rules for a successful central bank that was not being followed in Argentina until then. Finally
then, they stopped printing money to cover public expenditure. Salaries were frozen along with most
of the prices of consumption goods. Public companies like the electricity and water providers, as well
as the interstate routes were all privatized.
At the very beginning, the program looked successful but soon after a year it began, the
Austral currency began to depreciate respect to the American Dollar and never repositioned itself. By
1989, depreciation relative to the dollar reached over 5000 percent. This sharp fall of the value came
with extremely low levels of investment and the country seemed to go straight in default. People
became desperate and bloody riots happened all over the country; Hunger was great, and stores were
looted for food. This is how the Austral program failed and the currency had to be replaced back to
pesos in 1992 to an exchange rate of 10,000 Australes for each peso.
Riots were happening all over the country, inflation reached triple digits monthly and the
situation seemed to be going to worse. President Alfonsin could not take this anymore and resigned
from the presidency early, to give the power in 1989 to the next leader: Carlos Saul Menem.
Menem came to lead the country with severity and decided to stabilize the social and
economic situation at any cost. Beginning with smart political movements, he travelled to the United
Sates to re-establish political relationships with the country, and soon he got the trust of the American
president Josh Bush. He also re-established diplomatic relationships with Great Britain, avoiding
talking about the Falkland Islands conflict. In the desperate country, all the law and reform proposals
offered by Menem were easily accepted, and to control the inflation he implemented in 1990, the
“Bonex plan” this plan, would sound crazy to anyone, it consisted in freezing all the bank deposits in
national currency, and transform those in government bonds with maturity in ten years that payed
small amounts of interest to the holders. In this way cash liquidity was considerably reduced and most
of the M2 money was taken out of market circulation. Demand of the money that was left in the
market raised and inflation seemed to have been stopped. Because the money that was frozen was the
national currency (Austral still at the time) people were forced to use their reserves in foreign
currency, so the flow of American dollars in the market grew enormously and allowed the central
bank to increase their reserves of it.
With the augmented dollar reserves in the central bank, Menem, along with his new minister
of economy Domingo Cavallo implemented the conversion plan, to take the currency back to pesos.
With the conversion law implemented in 1992, the central bank was in charge of securing the
exchange rate of 10,000 Australes for one American dollar, and the new Argentine peso was set at
price parity of one by one with the dollar.
Inflation came near to cero, most of the public companies like national zoos, airports and
airlines, public transportation, petroleum companies and others were all privatized, the market had no
protectionist barriers to international commerce. Investment grew and a commercial block of free
trade called MERCOSUR was established successfully between Argentina, Brazil, Paraguay, and
The first Argentinian crisis seemed to have come to an end here, and the country enjoyed a
few years of prosperity, in the streets people called this to be a miracle. But it was the promoter of this
good time what again took the country in the second big crisis that is analysed in this essay.
With the privatization of the public companies a big feeling of corruption came along, these
public companies were part of the cause of the public deficit that the country had, because of this,
selling them was crucial to get rid of massive amounts of public deficit but the sale of them is what
caused feeling of resentment on the people. Because of the terrible situation of the country, the
companies were auctioned and most of the time sold for prices far inferior to their real or potential
value, not only that, but people with spheres of influence in the government were allowed to buy
several companies at a time and create private monopolies of different types. The prices of the
services these companies provided augmented, partly because the subsidies on them was taken out
and now people were forced to pay the real value of the service they were obtaining. People were not
used to this and they felt like they were losing what was theirs, which decreased the popularity of the
government. Another big factor were the effects of the exchange rate parity with the dollar, though the
inflation in Argentina was reduced to single digits this was still higher than the one of the United
States, soon putting the peso in a level of overvaluation causing exports to reduce significantly, and
the cash flow of the country as well. “The value given to the peso currency was off-balance with the
level of productivity of the country” the only way they found to finance the deficit that this exchange
conversion was creating was through borrowing money. External financing helped relief the burden of
keeping the exchange rates over their real value, but this brought a massive growth of the public debt
again. Once the borrowed money stopped coming in, the entire system collapsed. People lost their
trust on the government to keep the value of the currency and everyone tried to get rid of the peso.
“part of the reason to maintain convertibility related to pressures from international financial
institutions while the middle classes with dollar-denominated bonds also voted for stability. Overall,
these austerity measures only exacerbated social unrest.” (Gezmis, 2015, p. 84)
The outflow of capitals continued despite attempts of the economy ministry to stop it. With
the intention of re-gain the IMF’s credibility and recover their aid, the minister Cavallo announced a
“Zero Deficit Plan” that included a 13 percent cut in public salaries and pensions, which led to
massive riots and protests from the labour unions. Soon after, the fear of devaluation took over again
and bank runs began. With this situation, the IMF denied lending money to the country again, and the
government declared a desperate measure that they called “Corralito.”
Corralito was a limitation by the government to reach your cash deposits, and also prohibited
transfers of money to any foreign country. It began with a limitation to withdraw a max of $250 but
continued with a total restriction of money withdrawal from any checkable and savings accounts.
“Corralito spurred the anger of middle classes, who joined the poor in the streets with slogans of Que
se vayan todos (“Out with all of them”)” (Gezmis, 2015, p. 84)
Under the social pressures, president De la Rua resigned and literally flew off the country.
This economical disaster began to come to an end after the resignation of the president. In December
2nd of 2002, they took corralito down, and the cash deposits were freed, at the same time, the
Conversion, peso- dollar parity was broken, and the exchange rate was freed.
Argentina got to recover from the crisis thanks to its big reserves of raw materials and to a
policy that remained committed to achieve fiscal surpluses to control inflation and repay the debt.
Kirchner government was cautious about public spending and instead of returning to old
developmentalism, departing from free market fundamentalism, credibility and stability was achieved
via re-activation of state’s financial regulatory mechanisms and rebuilding the state’s fiscal capacity
to protect from destabilising effects of speculative capital flows. Some degree of flexibility in the
exchange rate was allowed, developmental practices to promote industrial competitiveness and
employment were re-activated. (Gezmis, 2015, pp. 23-24)
The government reintroduced itself on regulation and activism to promote national industry
and exports after the financial crisis, several of the contracts with privatized utilities companies were
re-negotiated. “Investment rules and price regulations in strategic industries were employed where
concentration of income and production prevails, constraining their rent-seeking activities to ensure
adequate investment for the domestic-facing manufacturing industry” (Gezmis, 2015, p. 25)
Differently from the first developmentalism that was implemented in times of president
Peron, now, under Kirchner administration the import trade was not completely forbidden. Some
regularization was made, but the focus of this new developmentalism was to ensure that the national
Argentinian production was at a good level of competition compared to foreign imported products.
Tax incentives were given for local and foreign investors to upgrade technology to global market
Although this time of Argentinian politics was characterized for a socialist orientation that re-
regulated the labour markets around principles of collective action, employment creation and social
security, this did not reject integration to the global capitalist market. At this point in history
Argentina achieved its economical stabilization, and inflation was controlled for some time. The
country still had labour problems, specially in the low-skilled labour sector which was greatly affected
by informality, low wages and job insecurity.
This government of Kirchner was characterized in many ways to similar politics to the ones
of Peron, indeed it was called to be a “Peronist” government. It was very social oriented, some level
of protectionism to national industry was applied. But differently from Peron, they did not enclose the
country in a self-sufficient economy. Adding the incentives for technological improvements, the
national industry of Argentina was able to compete with the foreign imported products. The
previously privatized public services were subsidized so people could afford them again and a free
trade exchange market was re-established.
To recap, the Argentine nation was one of great prosperity and growth in its early ages. Soon
external crises like the great depression of 1930 started to affect their production and the desperate
attempts to save the economy by the country’s leaders were policies that ended up doing the complete
opposite and harmed the nation’s economy and society deeply. The crisis of the early 1980s and the
2001/2002 were both caused in great way by the greed of power of the people that governed at the
time. This situation is sadly still the one that Argentina keeps facing today.
Hopefully one day, presidents will put as a priority the well being of the nation and apply
transparent policies to put the country back in the path of greatness.
Annus Horribilis; Argentina’s Economy.” The Economist, no. 9122, 2018, p. 68. EBSCOhost,
This is a periodical article relating the most recent part of the Argentinian economy under the
presidency of Mauricio Macri, a year that was filled with new economic policies that did not have the
expected overall results.
Gezmis, Hilal. From Neoliberalism to Neo-Developmentalism? The Political Economy of Post- Crisis
Argentina, 2002 – 2007. Dissertation. University of Sheffield, 2015. URL:
This thesis explores the policy responses to the financial crisis that Argentina went trough in
2001/2002 and its implications for the Argentinian political economy between 2002 and 2007.
Precisely analysing the extent and nature of the shift from neoliberalism to neo-developmentalism.
Haverland, Jeanne B. Argentina : Economic, Political and Social Issues. Nova Science Publishers,
Inc, 2009. EBSCOhost,
This book gives a throughout overview of Argentina and its economy, portraying the rich assets the
country possess and the social issues that it faces.
Isabel Sanz Villarroya. “Macroeconomic Outcomes and the Relative Position of Argentina’s
Economy, 1875-2000.” Journal of Latin American Studies, no. 2, 2009, p. 309. EBSCOhost,
doi:10.1017/S0022216X09005586. URL: https://0-www-jstor-
This academic journal compares the Argentinian economy to that of Australia and Canada to analyse
the why of its economic decline, with a thorough analysis from 1875 to the 2000.
Melnick, Rafi. “The Demand for Money in Argentina 1978-1987: Before and after the Austral
Program.” Journal of Business & Economic Statistics, vol. 8, no. 4, 1990, pp. 427–434. JSTOR,
This is a study of the money demand in Argentina that analyses the “Austral” project which was a
currency change in Argentina made with the intention to stop inflation in the 1980s
WYLDE, CHRISTOPHER. “State, Society and Markets in Argentina: The Political Economy of
Neodesarrollismo under Néstor Kirchner, 2003-2007.” Bulletin of Latin American Research, vol. 30,
no. 4, Oct. 2011, pp. 436–452. EBSCOhost, doi:10.1111/j.1470-9856.2011.00527.x. https://0-eds-b-
This Academic Journal tackles the presidency of Nestor Kirchner going from 2003 to 2007 in this
article. Giving a thorough analysis of political economy taken on the period. This government served
to change the framework of the Argentinian economy greatly and ways that would affect the country
deeply up to this day.