Argentina's Currency Crisis
ABOUT ARGENTINA'S CRISIS
- Origins
ABOUT ARGENTINA'S CRISIS
- Origins
-investors were scared because of east asian crisis -did not want to invest in developing countries
1998-2001 1991- Ley de Convertibilidad 1991 - tied the dollar to the peso -quality of life increased, people able to buy plenty of imports -original intent was to decrease the potential for inflation by pegging the peso to the US dollar, and then in early 90s, rapid growth in the economy, large amounts of capital inflow -initially, it was a solid plan until the Argentine peso was unable to further appreciate with the US dollar -increase in the price of Argentine exports which had buyers search elsewhere for products, therefore exports decrease, and this caused a strong decrease in economic growth and capital inflow. -dollar changes with the emergence of the euro -devaluation of the Brazil real, effect on Argentina because they were trading partners. The peso appreciated against the real. inability to keep up with the growth of the US economy
Investors are afraid because of the speculative attack - they are scared (become flighty) of the instability of the economy regardless of the fixed rate. Because of this, they take part/cause the speculative attack. As stated earlier, a speculative attack is self-fulfilling and usually causes a recession.
- Describe what this means for the country and economy
- Describe what this means for the country and economy
