The IMF Fails: The Argentine Drama

After Brazil’s successful exit from the 1998–99 crisis a period of calm descended on world financial markets, allowing the IMF, ministers of finance, and central bank governors to enjoy a breather after the hectic preceding crisis years. But this restful period was not to last long; clouds began to gather over Argentina. In fact, astute weather watchers had already discerned that all was not well in Latin America’s most prosperous country, especially after the hefty depreciation of Brazil’s currency. As Argentina operated a currency board based on an immutable peg of the peso to the US dollar at a one to one rate, the drop of the Brazilian real in early 1999 resulted in a serious weakening of Argentina’s competitiveness. But there were other factors at work in undermining Argentina’s apparently healthy economic position, and these bore the stamp “Made in Argentina.” Yet early signs of trouble were either overlooked or ignored by overly optimistic investors, lenders, and international organizations. The end result was a disastrous collapse of the Argentine economy, causing severe hardship for a large section of the population. It also marked the biggest failure ever for the IMF in its relationship with a member country.