International Financial Crisis

International Financial Crisis

Introduction

The economy of Argentina in 2002 has undergone the culmination of economic turn down which start in late 1998. In the following table shows the Argentina crisis which is very usual as they slightly correspond with a global growth. Hence, it was an almost a recession but much lesser than the depression. Understanding this crisis might assist in mitigation of the future financial crises. This article will highlights on the International Financial Crisis that Argentine experience along with the US experience during the crisis.

Discussion

In last thirty years, Argentina has experienced three financial crises. The first one was between 1980 and 1982 while the second financial crises turn out to be in 1995 and hence the last financial crisis that Argentine went through was in 2001 and 2002. As far as America is concern, the crisis of saving and home loans i.e. 1988 to 1989, the burst of don com companies and Enron case that was in 2000 and 2001 and lastly the current crisis of mortgages i.e. subprime mortgages crisis (Argentina Economic Crisis of 2001).

In each case, both Argentina and United States, these crises were head by years of liquidity abundant and optimism which contributes to financial intermediaries and borrowers to take imprudently incurring risk decisions, under-estimating the risk which is involved. In both countries the existence of regulation and control were lacking. The crisis of Argentine in 1980 to 1982 occurred in an international context which offered liquidity not only for our country but also for emerging countries. The re-cycling of dollars resulted international banks to offer credit to companies and governments in various countries and they took these loan on fixed interstate nevertheless in some cases the loan was at floating rates.

The implementation of tight monetary policy by the Paul Volcker of United States in order to fight against the inflation, interest rate which skyrocketed between 1980 and 198 and hence, nearly all emerging economies faced financial crises. These loans were not paid by many of the debtors and hence resulted in loss for creditors. As far as Argentine is concern, the crisis has very severe dimension due to the fact that many of the loans was used for purchasing the assets at overstated rate. Such as in the case of wineries and wine stock was financed through the Bank of Andes and other purchase were financed by Regional Exchange Bank. Central Bank did not properly regulate the lending policies and hence due to this, they had many loans termed as accounting frauds (Maniam, Balasundram, Leavell, Patel, 2004).

The financial crisis of Argentina in 1995 was due to the sudden capital out-flow which was just after the devaluation of the Mexican peso in late 1994. This capital out-flow impacted the wholesale banks which had given loans to the provincial banks. They were unable to repay the loan since they had debtors in their respective provinces who contributed in the fiscal deficits using credit from the ...