Argentine Recovery * The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and allocated large sums for social welfare, while controlling expenditure in other areas * The peso slowly rose, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned. * The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from rising further, which would break the tax collection scheme (largely based on import taxes and royalties) and discourage further reindustrialization. The central bank started rebuilding its dollar reserves. * The currency exchange issue was complicated by two mutually opposing factors: a sharp increase in imports since 2004 (which raised the demand for dollars), and the return of foreign investment (which brought fresh currency from abroad) after the successful restructuring of about three quarters of the external debt. The government set up controls and restrictions aimed at keeping short-term speculative investment from destabilizing financial markets. * By 2002 GDP growth had returned, surprising economists and the business media, and the economy began to grow at an average 9% per year. In 2005, Argentina’s GDP exceeded pre-crisis level. * Instead Nestor Kirchner inaugurated a series of emergency public works programs. He authorized payments to unemployed workers (150 pesos per month) to meet the basic needs of nearly half the labor force. * Against this background of total and unmitigated failure and the human disaster of US – IMF promoted “free-market” policies, Kirchner/Fernandez defaulted on the external debt, re-nationalized several privatized firms and the pension funds, intervened the banks and doubled social spending, expanded public investment in production and increased popular consumption, on the road to economic recovery. By the end of 2003 Argentina turned from negative to 8% growth. * Argentina’s economy has grown over 90% from 2003 – 2011, over three times that of the United States. Its recovery has been accompanied by a tripling of social spending, especially on programs reducing poverty. The percentage of poor Argentines has declined from over 50% in 2001 to less than 15% in 2011. In contrast US poverty has risen over the same decade from 12% to 17% and is on an upward trajectory over the same period. * Argentina’s dynamic growth of GNP has been fueled by growing domestic consumption and dynamic export earnings. Argentina has a consistent large trade surplus based on favorable market prices and increased competitiveness.

Managing the Crisis

Argentina made three key decisions during the course of its crisis.
The first was to seek IMF assistance in the fall of 2000 to support the currency board and a relatively accommodative fiscal policy.
The second decision, made by Cavallo in the summer of 2001, was to seek more money and push out bond maturities instead of exiting convertibility and seeking debt relief.
The third key decision, made after the IMF left the scene, was to restructure public and private domestic debts through the government forcing banks to convert their dollar.