FROM PARTNERSHIP TO COLLAPSE: ARGENTINA AND THE INTERNATIONAL MONETARY FUND THROUGH ECONOMIC CRISIS AND RECOVERY By MARY ELAINE MITCHELL WATERS A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS UNIVERSITY OF FLORIDA 2007 1 © 2007 Mary Elaine Mitchell Waters 2 To my husband and family, whose encouragement and support throughout the years has made all my endeavors possible 3 ACKNOWLEDGMENTS I thank the members of my thesis committee for their time, advice and guidance during the thesis process. I am particularly grateful to my supervisory committee chair, Dr. Terry McCoy for his enthusiastic support of the topic and for his constructive criticism. Dr. Ana Margheritis provided me with invaluable insight into the realities of Argentine political economy, for which I am extremely grateful. I thank Dr. Andy Naranjo for being so generous with his time and assistance. My graduate studies at the University of Florida have been challenging and rewarding. I thank my professors, who challenged me to think critically about the issues facing Latin America in the 21st century. I also wish to thank my fellow students in the Latin American Studies department for raising the level of debate about important Latin American issues. My academic and personal accomplishments could not have been possible without the love and support of my family. I owe a debt of gratitude to my parents, who have fostered my interest in Latin America and encouraged me to pursue my passions and my goals. Finally, I thank my husband for his unconditional love and encouragement over the years, especially during the thesis process. I could not have done this without him. 4 TABLE OF CONTENTS page ACKNOWLEDGMENTS ...............................................................................................................4 LIST OF TABLES...........................................................................................................................7 LIST OF FIGURES .........................................................................................................................8 ABSTRACT.....................................................................................................................................9 CHAPTER 1 INTRODUCTION ..................................................................................................................11 Problem Statement – Research Question................................................................................13 Literature Review ...................................................................................................................14 Approach ................................................................................................................................20 Significance and Organization................................................................................................21 2 ARGENTINA AND THE INTERNATIONAL MONETARY FUND, 1978-1998 ..............24 Introduction.............................................................................................................................24 The Evolving Role of the IMF in the Global Economy .........................................................26 Argentine Economic Policy and the Debt Crisis ....................................................................29 The Military Regime .......................................................................................................30 The Alfonsín Administration...........................................................................................34 Comments on Argentine Economic Policy Prior to 1991 ...............................................42 The Convertibility Plan...........................................................................................................43 Conclusions.............................................................................................................................48 3 ANATOMY OF THE CRISIS................................................................................................50 Recession and Contagion........................................................................................................51 Fiscal Deterioration ................................................................................................................55 The Inevitability of Collapse ..................................................................................................66 4 FACTORS CONTRIBUTING TO THE CRISIS...................................................................70 Convertibility..........................................................................................................................71 Fiscal Policy............................................................................................................................73 Debt Sustainability..................................................................................................................75 The Role of the IMF ...............................................................................................................76 Conclusions.............................................................................................................................80 5 5 ARGENTINA’S RECOVERY AND BREAK WITH THE IMF ..........................................82 Restoring Confidence in the Economy...................................................................................83 Debt Restructuring..................................................................................................................88 Summit of the Americas .........................................................................................................94 6 CONCLUSION.......................................................................................................................96 Findings ..................................................................................................................................98 Significance ............................................................................................................................99 Limitations and Future Research..........................................................................................102 APPENDIX A SELECTED ARTICLES OF AGREEMENT OF THE INTERNATIONAL MONETARY FUND............................................................................................................103 B GENERAL TERMS OF IMF FINANCIAL ASSISTANCE ...............................................111 C TIMELINE OF SELECTED EVENTS................................................................................112 D ARGENTINA’S LENDING ARRANGEMENTS WITH THE INTERNATIONAL MONETARY FUND............................................................................................................114 LIST OF REFERENCES.............................................................................................................115 BIOGRAPHICAL SKETCH .......................................................................................................125 6 LIST OF TABLES Table page 3-1 Key Economic Indicators 1997-2001.....................................................................................57 3-2 Sovereign Debt Ratings 1999-2004........................................................................................66 5-1 Key Economic Indicators 2002-2006.....................................................................................83 6-1 Key Economic Indicators 2007-2012.....................................................................................96 C-1 Timeline of Selected Events 1998-2005..............................................................................112 7 LIST OF FIGURES Figure page 2-1 Fiscal Deficit and External Debt 1975-1982 ..........................................................................31 2-2 Annual Inflation 1980-1992 ...................................................................................................36 2-3 Monthly Inflation 1985-1989 .................................................................................................39 3-1 GDP Growth 1997-2002.........................................................................................................54 3-2 Gross External Debt as a Percentage of GDP 1996-2002 ......................................................59 3-3 Bank Deposits January 3, 2000-December 31, 2001..............................................................67 3-4 Exchange Rate 1995-2006......................................................................................................68 4-1 Fiscal Deficit 1997-2001 ........................................................................................................74 B-1 IMF Funding Facilities and Policies....................................................................................111 D-1 History of Argentina’s IMF Lending Arrangements 1984-2003.........................................114 8 Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Arts FROM PARTNERSHIP TO COLLAPSE: ARGENTINA AND THE INTERNATIONAL MONETARY FUND THROUGH ECONOMIC CRISIS AND RECOVERY By Mary Elaine Mitchell Waters December 2007 Chair: Terry L. McCoy Major: Latin American Studies In 1991, Argentina embarked on an aggressive program of neo-liberal reform