My paper will discusses about the link between both crisis in Greece and Argentina, what we have learnt since this crisis and what are the common mistakes committed by both.
“Eleven years after the financial crisis of 2001, which led to the largest default in history (75 billion Euros), Argentina has reimbursed, the August 3, the last holders of securities issued during the freezing of assets, called "corralito" ("small enclosure").
The final explosion occurs when the Minister of Economy Domingo Cavallo announced on 1 December 2001, before the flight of capital and the liquidity crisis, the implementation of corralito, limiting bank withdrawals to 250 pesos a week and prohibited any sending funds outside. The disadvantage of a currency board is that there is no one to act as banker of last resort able to provide liquidity banks subject to a rush of depositors.
The elements concerning the beginning of the crisis are going to be related to economics and the overall mistakes committed by the financial crisis that happened in Argentina and the mistakes related to the banking system set up, internal and external.
Table of contents
THE SITUATION BEFORE THE CRISIS3
The reasons of the convertibility plan, his strengths3
And his weaknesses mixed with uncontrollable effects3
A crisis of confidence widespread4
Focus on the banking crisis and the currency crisis4
The strategies adopted by foreign banks5
The definition of three ideal types of foreign banks in emerging markets provides a first level of analysis as follow:5 Why did banks come in Argentina?6
incentives and attractiveness for foreign banks6
Principle of risks diversification7
Comparison with economical point of view9
COMPARAISON ABOUT THE DEBT CRISIS9
COMPARAISON ABOUT MONETARY POLICY:9
Comparison economic growth since 1999 Argentina / Greece9
THE SITUATION BEFORE THE CRISIS
The reasons of the convertibility plan, his strengths
At first, the Convertibility Plan prepared by the Finance Minister Domingo Cavallo helped stabilize the Argentine economy and contribute to the development of the financial system eroded by successive crises. The strategy aims to address the lack of domestic savings for economic development by opening from Argentina to foreign capital. Furthermore, to respond to the lack of confidence of creditors and investors the government chose an anchoring the peso to the dollar represents a guarantee of monetary and financial stability for foreign investors in Argentina, considering that the inflation during the past decade should be stopped definitely. Buenos Aires had to borrow money on financial markets before the anchorage with a rate exceeding 20%, which not permitted them to ensure a sane development.
And his weaknesses mixed with uncontrollable effects
But in a second time, the convertibility plan will increase the vulnerability of the Argentina economy to external shocks due to its dependency on the dollars. In 1999, when Brazil's, one of the largest trading partner (principally do the his geographical proximity and principally a historical partnership), Argentina devalued its currency; the repercussions on economic growth of Argentina are almost immediate.
The Convertibility Plan reduces the flexibility of the government, which must waive a policy of active currency to boost the country's competitiveness. Economic hardship spread the banking and financial system. The sudden devaluation of the Brazilian real and the steady rise of the dollar quickly cause a blockage of exports. Argentina becoming uncompetitiveness and unable to sell his products to his first partner, moreover aggravated by rising dollars.
Argentina is drawn into a severe deflation. Dollars causing, by the mechanisms of the currency board reduction in monetary circulation and credit crunch...