Argentina's National Bank: the banking system was the first casualty of the government's failure to balance its accounts.

 

The Economy

The Long Fall

Once I heard an Argentine businessman say that "Buenos Aires is a first-rate city in a fourth-rate country".

This rather cynical comment illustrates both the Argentines' pride in the splendor of the most European of American cities and their perplexity at their chaotic economy.

And indeed, their economic history is an unparalleled disaster. According to journalist Matias Marini, Argentina was among the seven wealthiest nations at the beginning of the 20th century. Now the country lays in turmoil - its international credit cut, its industry collapsed, and even the bank account of its citizens frozen.

In the morning of March 23, on his return from the World Economic Forum meeting in Monterrey, Argentine president Eduardo Duhalde, declared to the news media that he "didn't care if the dollar goes all the way up to 9 pesos; the government is not going to defend the currency." The following Monday Argentines flocked to the exchange houses in Buenos Aires' Financial District to convert their savings into dollars. The lines were interminable - people arrived before dawn. The exchange rate jumped from 2.6 to 4 in two days, only to recede back to 3 when the central bank finally decided to defend the currency on Wednesday. The purchasing power of Argentines dropped by 66 percent between December 2001 and May 2002.

Video: Long lines to buy dollars

 

The devaluation of the peso is only the latest symptom of the three-year long recession that succeeded the "Menemista feast" - the booming years of the Menem administration, following the liberalization of markets and privatization of public companies that made Argentina one of the hottest destinations for global investors at the beginning of the 90's. Other consequences include the biggest foreign debt default in history, an unemployment rate of 30 percent, and the bankruptcy of many indebted businesses. More than 40 percent of Argentines live under the threshold of poverty. The looting of markets and butcher shops by people who can't afford basic foodstuffs has become rather common - this, in a country once known as the granary of the world.

 

Video: Some entrepreneurs keep hope