2. Argentina’s Debt Crisis

Nobody thought, in the early 1990s, that Argentina’s public sector could easily recover access to capital markets after having being in default during the 1980s. However, while at the end of 1991 Argentina’s public indebtedness amounted to $61 billion, by the end of 1999 it had soared to $145 billion. Lenders could argue that they had lent money to a country that was at that time blessed by the IMF. In fact, the IMF played a key role in restoring confidence in Argentina by capital markets. It is hard to believe that lenders would have rushed to buy Argentine bonds without the IMF’s seal of approval. Continuous support by the IMF to the Argentine program, even after the Tequila crisis, showed its economy’s high sensitivity to external flows and allowed the government to pile up a huge debt, long after it was evident that the Convertibility regime was unsustainable. Finally, in 2001 Argentina defaulted again. This chapter shows this end was practically inevitable and emphasizes the role played by the IMF’s misjudgment on the sustainability of the Convertibility regime implemented by the Argentine government in 1991.