preview

The Key Causes Of Argentina's Economic Crisis

Better Essays
The Argentina economy has suffered various economic depressions that have resulted to key social and economic impacts. Amidst the fact that it was one of the world’s richest nations in the early 20th century due to its wheat, beef, and farm production, a lot of contributed to its economic depression. The first major depression that hit the nation occurred in 1930 when its farm’s export for the United States and Europe dried up. This affected the revenue of the nation that created trouble in paying public workers. Poverty has stretched through the suburbs of Buenos Aires, and has resulted to undermined confidence among investors, both local and foreign. The key cause of the crisis has been categorized into 4 factors including inappropriate fiscal…show more content…
Naomi Klein (2008) highlights this condition in her book, the Shock Doctrine. She asserted that by 1983 when Raul Alfonsin took over leadership from the Juntas, the U.S government and other countries expected Argentina to pay the debts amassed by the Junta which had risen from $7.9 billion to $45 billion (Klein, 2008). The debts were owed to the International Monetary Fund, World Bank, and US Export Import Bank. By the time the dictatorship rule ended, more debts were owed to other countries including Uruguay whose sum rounded up to half a billion dollars. Brazilian debt rose to 103 billion by 1983 from 3 billion (Klein, 2008). These debts were linked to corrupt officials as well as money used to buy guns, water cannons, and torture camps by the Juntas. The situation contributed to the economic depression that is still felt…show more content…
It is important that various economic variables remain flexible in order to accommodate the variable nominal and quantitative adjustments (Desai, 2014). In the case where there is a sudden drop in the dollar inflows, only a flexible economy will be able to reallocate resources for tradable activities or reduce imports in an aggregate demand. A rigid economy, however, will muddle through the crisis in a more traumatic and expensive means. In Argentina, the key rigidity issue is the insufficient exposure to foreign trade. Judging through the ratio of imports to GDP, the country is among the list of exposed nations in the foreign arena (Galt, 2013). The Mercosur, whose Argentina is a full member, has a common tariff of 13% compared to less than 5% in developed countries and only 7% in Chile. Galt (2013) adds that this biasness limits exports to only 10% of the total GDP of Argentina; this reduced the capital inflows of the country by 1%, thus resulted to economic
Get Access