{ "title": "Crisis Prevention and Resolution: Lessons from Argentina, Address by Anne Krueger, First Deputy Managing Director, IMF", "publication": "IMF News, July 17, 2002", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp071702", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp071702", "overlayPath": "/en/news/articles/2015/09/28/04/53/sp071702/index.md", "summary": "Given at the National Bureau Of Economic Research (NBER) Conference on The Argentina Crisis, MA, Cambridge", "publishDate": "2002-07-17", "sections": [ { "heading": "Introduction", "content": "- Context: National Bureau Of Economic Research (NBER) Conference on \"The Argentina Crisis\", Cambridge, July 17, 2002.\n- Purpose: Identify lessons from Argentina's experience for IMF crisis prevention and resolution and discuss immediate challenges and the Fund's role." }, { "heading": "What went wrong?", "content": "- Macroeconomic performance and reversal:\n - Between 1990 and 1997 its economy grew by more than 6 percent a year.\n - Real GDP is expected to decline by between 15 and 20 percent this year alone.\n - Argentina entered a protracted recession now in its fourth year (as of the speech).\n- Convertibility Plan and exchange-rate rigidity:\n - Convertibility Plan (1991) reduced inflation \"from four figures to single digits within three years\".\n - Fixed exchange-rate regime (currency board) reduced degrees of freedom for adjustment; insufficient domestic flexibility (e.g., labor market) contributed to mounting overvaluation.\n - Real exchange rate appreciated significantly during the 1990s; weak export growth relative to other Latin American countries.\n- Fiscal and public-sector imbalances:\n - Consolidated budget deficit was around 2½ percent of GDP even as the boom peaked in 1997 and 1998 (after off-balance sheet borrowing taken into account).\n - Much provincial fiscal indiscipline and off-budget borrowing exacerbated consolidated public finances.\n - Federal wage differential: in 1994 the average federal employee was paid 25 percent more than the average private sector employee; by 1998 the differential had risen to 45 percent.\n - Public sector employment accounted for 12.5 percent of the labor force in Argentina (mid-to-late 1990s), compared with barely 7 percent in Brazil and Chile, and 8-10 percent in Russia, Turkey and South Africa.\n- Debt dynamics and external vulnerability:\n - Consolidated public debt rose from less than 33 percent of GDP in the early 1990s to more than 41 percent in 1998.\n - Argentina's total foreign currency debt was around five times the size of its foreign currency receipts from exports of goods and services.\n - External debt climbed to 50 percent of GDP in 2000.\n - Markets feared collapse of the currency board; by the end of 2001 the debt-to-GDP ratio stood at 130 percent.\n - Financing requirement in excess of $20bn a year at the time market appetite for Argentine paper was exhausted.\n- Policy responses and sequence of events:\n - Large international support package: $14bn from the IMF and a total package of $40bn.\n - Market confidence undermined by policy moves: dollar/euro peg, removal of Central Bank Governor, a costly debt swap.\n - Spreads reached 500-600 basis points at one stage.\n- Four summarized proximate causes (as stated in the speech):\n 1. Fiscal policy too weak during the upswing.\n 2. Unfavorable external environment and shocks.\n 3. Convertibility plan locked in overvaluation given domestic inflexibilities.\n 4. Unsustainable debt dynamics left unaddressed." }, { "heading": "Lessons for Crisis Prevention and Resolution", "content": "- Debt dynamics and debt sustainability:\n - Need to focus more closely on debt dynamics; IMF stepping up work on the analysis and assessment of debt sustainability (remains a matter of judgment).\n- Currency boards and exchange-rate surveillance:\n - Currency boards are not necessarily durable without supportive fiscal and structural policies.\n - IMF priority: more candid and comprehensive analysis of exchange rates and exchange rate regimes.\n- Public external debt conservatism:\n - Emerging markets may need to be more conservative with public external debt; public sector reliance on international private finance is risky.\n - Changes in international capital markets have already forced reassessment of rules of thumb (e.g., adequacy of official reserves).\n- Sovereign debt restructuring mechanism:\n - Restructuring has become more difficult with shift from syndicated bank loans to bond issues and more numerous, diverse creditors (example: \"88 bond issues outstanding in five legal jurisdictions\" for Argentina).\n - Proposal: a sovereign debt restructuring mechanism to empower the debtor and a super-majority of creditors to take timely, efficient decisions.\n- Persuasive policy advice and ownership:\n - IMF must make policy advice more persuasive during booms through closer dialogue and outreach.\n - Ownership by authorities (and society) is essential for program implementation, but ownership alone is not sufficient—policies must also make economic sense.\n- The Fund's central dilemma (probabilistic judgments):\n - How far should the IMF support a policy strategy the authorities are committed to but which has uncertain chances of success?\n - Need to balance risk-taking in lending with responsibility to restore growth and viability." }, { "heading": "Immediate Challenges and Policy Priorities for Argentina", "content": "- Current economic conditions (as described in the speech):\n - Real GDP was down more than 15 percent on a year earlier in the first quarter.\n - Inflation rising: consumer prices increased by 30 percent and wholesale prices by almost 100 percent in the first six months of the year.\n - Liquidity assistance expanded monetary base: year-on-year change in currency issue moved from minus 27 percent in December to plus 26 percent by the end of June.\n - Fiscal position: consolidated primary budget deficit standing at around 1 percent of GDP in the first half.\n - Despite current account surplus, intervention to reduce pressure on the peso and inflation is depleting official reserves.\n- Progress noted:\n - Satisfactory amendments to the insolvency law and repeal of the economic subversion law.\n - Bilateral agreements with provinces to ensure orderly adjustment of their finances.\n - IMF Executive Board agreed on July 15 to extend by one year the expected repayment of $985m due from Argentina under the Supplemental Reserve Facility.\n- Two priority areas for Fund–authorities discussions:\n 1. Developing a sustainable monetary anchor:\n - Essential to halt rising inflation.\n - Independent advisory group appointed to assist.\n - Issues include outcome of voluntary securitization of bank deposits and restoring central bank independence.\n 2. Strengthening the banking sector:\n - Key elements: framework for bank intervention and resolution; consistent and sustainable liquidity support policy; proposals to reform, restructure and downsize public banks.\n - Authorities expected to detail plans shortly.\n- Urgency:\n - Rapid progress in these areas is essential to create a strong, comprehensive program capable of restoring confidence, underpinning a sustained recovery, and winning international support.\n - \"Time is not on Argentina's side.\" The IMF will remain fully engaged.\n\nSource: Crisis Prevention and Resolution: Lessons from Argentina, Address by Anne Krueger, First Deputy Managing Director, IMF (July 17, 2002).\n\n---\n\n\n References\n\n- Argentina and the IMF\n- Brazil and the IMF\n- Mexico and the IMF\n- Russian Federation and the IMF\n- South Africa and the IMF\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp071702" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/53/sp071702/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/53/sp071702/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/53/sp071702/bundle-manifest.json)", "Published: July 17, 2002", "Context: National Bureau Of Economic Research (NBER) Conference on \"The Argentina Crisis\", Cambridge, July 17, 2002.", "Purpose: Identify lessons from Argentina's experience for IMF crisis prevention and resolution and discuss immediate challenges and the Fund's role.", "Macroeconomic performance and reversal:", "Convertibility Plan and exchange-rate rigidity:", "Fiscal and public-sector imbalances:", "Debt dynamics and external vulnerability:", "Policy responses and sequence of events:", "Four summarized proximate causes (as stated in the speech):", "Debt dynamics and debt sustainability:", "Currency boards and exchange-rate surveillance:", "Public external debt conservatism:", "Sovereign debt restructuring mechanism:", "Persuasive policy advice and ownership:", "The Fund's central dilemma (probabilistic judgments):", "Current economic conditions (as described in the speech):", "Progress noted:", "Two priority areas for Fund–authorities discussions:", "Urgency:", "[Argentina and the IMF](http://www.imf.org/external/country/ARG/index.htm)", "[Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)", "[Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm)", "[Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)", "[South Africa and the IMF](http://www.imf.org/external/country/ZAF/index.htm)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/53/sp071702/index.md", "json": "/en/news/articles/2015/09/28/04/53/sp071702/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/53/sp071702/bundle-manifest.json" }, "generatedAtUtc": "2026-09-27T10:19:46.843Z" }