ARGENTINA ECONOMY |
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| Argentina benefits from rich natural resources, a highly literate population,
an export-oriented agricultural sector, and a diversified industrial base.
However, since the late 1980s the country had piled up huge external debts,
inflation had reached 200% per month, and output was plummeting. To combat
the economic crisis, the government embarked on a path of trade
liberalisation, deregulation, and privatisation. In 1991, it implemented
radical monetary reforms which pegged the peso to the US dollar and limited
the growth in the monetary base by law to the growth in reserves. |
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Though initially a success, with inflation dropping and a recovering GDP
growth, subsequent economic crises in Mexico, Asia, Russia and Brazil
contributed to ever worsening conditions from 1999 onward. The government
sponsored tax increases and spending cuts to reduce the budget deficit,
which had ballooned to 2.5% of GDP in 1999, though both domestic and foreign
investors remained skeptical of the government's ability to pay debts and
maintain the peso's fixed exchange rate with the US dollar.
The economic situation worsened still further in 2001 with the widening of
spreads on Argentine bonds, massive withdrawals from the banks, and a
further decline in consumer and investor confidence. Government efforts to
achieve a "zero deficit", to stabilise the stricken banking system, and to
restore economic growth proved inadequate in the face of the mounting
economic problems. Newly elected president Eduardo Duhalde met with IMF
officials to secure an additional $20 billion loan, but immediate action
seemed unlikely. The peso's peg to the dollar was abandoned in January 2002,
and the peso was floated from the dollar in February.
As of January 2004, the economical situation of the country showed a slight
improvement over the past few years, apparently due to the internal growth
of 2003. Economic restoration is expected to continue over the next few
years with constant, internal growth rates. |
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