ECONOMIC CRISIS OF ARGENTINE

Learning from the crisis of Argentine

Abstract

The main objective of this academic easy is to determine the factors which contributed to the crisis of Argentine, and what was the learning for the developing countries. Another aim of the paper is to find out that whether developing countries are more open to risk of default caused by the international capital cash flow or not. By looking into the details of the Argentine crisis some factors were found which contributed the default of the country which is political, less control on the financial institution, high debt to GDP ratio, tax evasion, fixed rate exchange policy and some other. As far as learning for other developing countries is concerned, so in this paper learning from the crisis of Argentine suggest that developing countries must keep an eye on the financial institutions of the country. Argentine also learned from the defaults of other countries but tat learning was made after the crisis of 1999-2001. As in the case of Argentina, deficit of loss was the main factor which was stopping foreign and as well domestic financers to lend money and simultaneously depositors also lose confidence on banks.

Learning from the crisis of Argentine

Introduction

The crisis of Argentina was not surprising for any one, as it was a predicted crisis as countries financial situation was clearly telling that the country is going to default. Being a financially developing country Argentina's openness toward the international financial market is also an issue for debate that financial cash flows are not a good option for developing countries as after the creation of IMF, which took place as a result of world war II, cash flow between countries raised from 5 % to 21% (Mishkin, 2006).

Interest payment on the foreign debts was the major issue for Argentina as currency of the country was devaluing with respect to dollar. By critically analyzing the countries financing situation it is understood that why country was unable to pay the interests in dollars. Argentina's financing was more relying on the IMF and MDBs, as it increased from US $3.8 billion in 1995 to 10.6 billion $ in 2001 (Setser, Gelpan 2006).

The crisis of Argentina can be understand by dividing them into the three categories one is domestic banking crisis, second is economy crisis as whole and third is external debt crisis. These three crises are interlinked together but the starting part of the crisis was the devolution of Peso as economist say that this was the turning point for the Argentina's economic crisis (Setser, Brad & Anna Gelpern, 2006).

Argentina's case is really different with all other crisis of the world, though the crisis of Argentina has very different reasons also, which will be discussed in details, but the most remarkable thing is that how the country came back from the crisis. Since Argentina is the 3rd largest economy of Latin America, so that might helped the country to grow their economy but the part of learning for other developing financial institutions ...