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With the largest ever sovereign debt default of $155 bn, the Argentine economy is facing a catastrophe. Abolishing its decade-old peg to the dollar and a devaluation of the peso by 29 percent was a Hobson's choice for the government. Will this be sufficient to revive the economy?
Since the South-east Asian crisis in 1998-99, eminent economists, Central Bankers and specialists in emerging markets have published a number of papers trying to explain the best possible approach to reform the global financial architecture. Many of the reforms were imposed on the countries, such as, pegging their currencies against the dollar and increasing transparency, accountability and embracing globalization through openness. While a few countries were successful in the process, others failed.
A glaring example of such an economy, which is on the brink of collapse, is Argentina. As declared on December 23, 2001, by the then President Adolfo Rodriguez Saa, the country has entrapped herself in a perpetual public foreign currency debt burden of over $155 bn. Since the last six months the economy has been contracting at an annual rate of 11 percent coupled with a skyrocketing unemployment rate of 20 percent or more. Of a 37 million population, every day 2000 people are estimated to slip below the poverty line. The economy has already entered into a catastrophe, destroying jobs, tax revenues and political support of the common masses. Foreign bondholders are expected to suffer severe pain in such a sovereign debt default. Even the government has been forced to default on commitments to its workers, pensioners and provincial governments in its attempt to repay public debt. Coupled with these troubles, sky-high interest rates make fiscal solvency, private investment and economic recovery impossible. The miseries of Argentina now cry out in newspaper headlines around the world: the economy is panic-stricken and rampant looting and riots have taken considerable toll of lives. The beleaguered ordinary Argentines are now fed up with the people who rule them.
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