The Crash and Crisis of 2001

In 1983 Argentina returned to democracy with the election of Raúl Alfonsín (1983-1989) from the Unión Cívica Radical party. Once the jubilation had subsided, Alfonsín was presented with the task of fixing a devastated economy plagued with an exorbitant foreign debt, rampant unemployment, and unparalleled inflation.

Two years into Alfonsín’s government not much had improved. Inflation hovered in the 1,000 percent range. Alfonsín looked to the International Monetary Fund (IMF) for assistance.

In order to secure a loan, the IMF pressured Argentina to make significant reforms to stop inflation or face economic sanctions. As a quick fix to inflation, Alfonsín introduced the “Austral Plan,” a new currency to replace the longstanding peso in order to have a better control of how much paper money was in circulation.

The Austral failed disastrously. Limited bonds, shortening reserves, and increased unemployment inflated the new currency. Soon denominations of the currency jumped from 100 to 5,000 and closed off at 500,000. Prices on everyday items increased or decreased often in the span of hours.

At the close of Alfonsín’s presidency, newspapers were filled with stories of the price of a meal at restaurants changing from the moment it was ordered to the time the bill came.

Carlos Menem, c. 1990s. 

Hoping to repeat the success of Peronism, Argentines elected the Peronist candidate, Carlos Menem. Hailing from the western province of La Rioja, one of the nation’s poorest, Menem had successfully steered the province toward economic sustainability.

However, in a complete reversal of peronismo, once in office Menem pushed for the privatization of all major industries—in order to end government subsidies—and established the plan de convertibilidad, which tied the Argentine currency to the U.S. dollar—in the form of international credit from the IMF.

In 1991, the Argentine government established direct convertibility between the Argentine Peso (ARS) and the USD—a 1:1 exchange rate—as a tourniquet to high inflation and the depreciated local currency. The results were astonishing. Inflation dropped yearly and the USD was prized for its financial security.

Throughout the 1990s, IMF-Argentine relations reached their pinnacle. Pegged as an “emerging market,” the IMF extended the nation’s credit and brought in foreign bondholders to expand foreign reserves. In return, the IMF required the Argentine state to make various market-oriented structural changes: privatization, cuts in public spending, deregulation, the suspension or lowering of tariffs, and the opening of the nation to foreign companies.

During the 1990s, Argentina’s economy stabilized and grew at a steady rate of 6 percent per year. It came out almost unscathed from the “Tequila Crisis” of 1994 when the Mexican peso was devalued against the USD. At the social level, these reforms were also a success. Unemployment declined as foreign companies expanded their services. Flush with U.S. dollars, Argentines traveled, bought property, and boosted consumption.

Yet problems persisted that have affected the nation to this day.

First, for the remaining years of the 1990s, Argentines shifted their entire economy to the USD—economists estimated almost two-thirds of long-term financial contracts (mortgages, personal loans, and business loans) were in USD, thus requiring a healthy stream of currency.

Second, in order to maintain a healthy flow of USD into the Argentine Reserve, the government was forced to request loan after loan from the IMF. And the government was unable to complete many of the structural changes required by the IMF.

Riots in December 2001










In December 2001, with an insurmountable foreign debt and uncontrolled national spending, the IMF cut off all further aid to Argentina. Foreign banks cleared out accounts in order to make up for the large loans.

The next morning Argentines woke up to find their bank accounts almost empty. People clamored to pull out the last few dollars that remained and many families lost everything.

To avoid a run on the banks, Domingo Cavallo, Minister of the Economy (above right), put forth the Corralito (corral) plan. The plan put strict daily quotas on the amount of dollars a person could withdraw. In between withdrawals, people such as Albino could only watch as their savings depreciated further.

Riots erupted and Buenos Aires’s financial district—a block from the presidential house—became the site of intense violence. Responding angrily to the quota, an HIV-positive person jabbed a bank teller with a needle filled with blood. In the outskirts of the city of Rosario, some families survived by hunting and eating feral cats.

Argentina’s recovery from the crash of 2001 under the governments of President Néstor Carlos Kirchner (2003-2007) and Cristina Kirchner (2007-present) has been a long and arduous journey that has centered on reducing foreign debt, promoting local production of goods, and finding new markets for the agricultural sector (soy).

In the mid-2000s, soybeans and soybean oil and meal generated more than 20% of Argentina's export revenue.

The Kirchner period presents some of the inherent problems of its predecessors. In order to promote consumer confidence, the government outlawed the USD, which created a black market of foreign currency that is more representative of inflation, and prohibited the importation of goods that could be assembled in Argentina’s Tierra del Fuego. Yet their prices are high and rather than end demand for foreign products, it has actually created black markets for consumer goods. For example, Apple products, which are solely produced in Apple’s Chinese factories, are brought in from Miami and privately sold in the range of 20,000 pesos.

Néstor Kirchner and Economy Minister Roberto Lavagna discuss policy, August 2004.

Argentina Now and the Rush for the Dollar

Since the 2001 crash, the USD has become a coveted currency in Argentina for its financial security and resistance to inflation. Between 2001 and 2012, the government heavily regulated the amount of dollars citizens could purchase and under what circumstances. Yet, people soon began stockpiling private reserves, and in 2012 the government banned the USD. From this, the el blue conversion rate developed.

Although technically illegal, the blue has its benefits. Unlike the state-mandated rate, the unofficial exchange moves in conjunction with inflation and the rise in the cost of living. In 2014, for instance, when the DB peaked at 15.72 Argentine Peso (ARS), the official exchange rate was at 8.50 ARS.

This daily interaction has become so prominent that roughly $20 million is exchanged on the streets of Argentina per day. Newspapers publish the “official” exchange rate and el blue in their finance sections and the rate of the unofficial Blue Dollar can be followed on twitter, @DolarBlue.

Yet, the current government under Cristina Fernández de Kirchner has simply tried to ignore the el blue market and downplay its importance. According to the government, el blue is simply not an indicator of inflation and not an accurate exchange rate.

National Bank of Argentina

In 2013, Mercedes Marcó del Pont, former president of the Argentine Central Bank, publicly stated that the DB was “not relevant” in a discussion of the national inflation. Through a manipulation of the National Institute of Statistics and Census, the state deliberately publishes low inflation indexes to maintain political consent.

In order to counteract inflation and work around credit restrictions, Argentina has looked to China as a new creditor and market. Indeed, China has been more than willing to buy Argentine debt. In 2014 Argentina and China signed an agreement that will deposit 11 million yuan into the Argentine reserve by 2017.

Presidents of Argentina and China (Cristina Fernandez and Hu Jintao) meet in Beijing, 2014.

Most recently, Argentina and China have signed a trade agreement for $250 billion worth of investment in Argentina, and pledged to bring more Chinese families to Argentina. Chinese corporations will finance and build nuclear and hydroelectric plants and grain mills. In exchange, Argentina will provide soy, wheat, and beef to feed China’s growing urban sector.

No different than the nation’s reliance on the British sterling in the 19th century and the U.S. dollar in the 20th, Argentina’s financial future is tied to China’s.

Like the Argentina of the 19th century, modern Argentina has reverted to agriculture (GMO-soy and beef) as the foundation of its economy. As one of the world’s top producers of soy, Argentina’s global prominence is on the rise. Yet the social and environmental toll has been disastrous. Small- and medium-scale farmers cannot compete with large agricultural corporations, who employ an arsenal of pesticides with minimal regulatory oversight.

2012 Argentina Products Export Treemap 

The explosion of cancer and birth defects in the poorer provinces, such as Santiago del Estero and rural Córdoba, has begun to attract the attention of journalists and undermined the administration’s emphasis on human rights.

Argentina’s economic future is unclear. Perhaps in the coming months “Yuan!” will soon be added to the laundry list of currencies the Argentine black market will be willing to exchange for the local peso. Perhaps the economy will finally stabilize through soy exports. Perhaps things will stay just the way they are.