Thursday, May 29, 2014

Argentina's recovery from the 2001 crisis

Dean Baker uses the experience of Argentina after 2001 to look at the adequacy of countercyclical policies in the US since 2007 in Did Geithner save America from a Second Great Depression? CNN Money 05/27/2014. It includes this description of Argentina's recent economic history:

In December of 2001, Argentina defaulted on its national debt and broke the link of its currency to the dollar. This led to the sort of meltdown that Geithner and company worked desperately to prevent. Banks couldn't repay depositors, and businesses couldn't get access to working capital. The country was overtaken by panic as the economy plummeted.

But the plunge proved to be short-lived. Government measures were able to stabilize the economy by the second quarter of 2002, and it was growing rapidly by the second half of the year. In fact, by the end of 2003, Argentina's economy had fully recovered the ground lost from the crisis. By the end of 2004, the economy was larger than it had been before it went into recession in 1998. The country maintained healthy growth until the world recession brought it to a halt in 2009. (There are questions about the integrity of the data toward the end of this period, but there is little dispute that the data through 2004 are largely accurate.)

In short, Argentina had a full-fledged financial crisis and meltdown of its banking system, but it didn't endure anything like the Great Depression. Its government and central bank were able to act aggressively to quickly get the country's economy back on its feet.

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