Ar Impact As the debt grew, the interest rate that Argentina had to pay foreign creditors also rose, further increasing the annual imbalance and accelerating the growth of the foreign debt. Default became unavoidable. When Argentina finally defaulted on $155 billion of central and provincial government debt in December 2001, it was the largest sovereign debt default ever in history. Sophisticated Argentines and foreign investors knew that the peso had to be devalued if future current-account deficits were to be reduced without a continued massive recession. The convertibility law allowed them to shift pesos into dollars and then to take the dollars out of the country. Although a loan from the International Monetary Fund (IMF) in 2001 gave a temporary boost to confidence that stemmed the run on the central bank, this lasted only a few months and the peso was devalued sharply in January 2002. Unemployment spiked by 2003: * The De la Rúa administration implemented $1.4 billion in cuts in its first weeks in office in late 1999. Austerity was furthered by $938 million in spending cuts and $2 billion in tax increases. Within the next three years unemployment would rise from 12% to 25%, One question remains though: if Argentina was not able to cope with the fixed exchange rate system why did it not devalue its currency sooner in 1997,1998 or in 1999. One can site three possible reasons for the same. 1. there was a fear that breaking the peg and devaluing the peso would bring back the high rates of inflation that had plagued the economy before the two currencies were tied. 2. Argentine households, businesses and government had so much dollar- denominated debt, that the