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Fiscal Mismanagement Caused Argentina’s 2001 Crisis

In: Business and Management

Submitted By smallbacon
Words 750
Pages 3
Fiscal mismanagement caused Argentina’s 2001 crisis
Summary:
It is believed that the fiscal mismanagement which came from 1) fiscal indiscipline. 2) loose fiscal policy, caused Argentina’s 2001 crisis. Each of these two parts covered the problems of the country’s tax system, fiscal policy, currency policy and government management. The following contents will give more details.

Fiscal indiscipline contributed to the crisis
Fiscal indiscipline at provincial level lead to a heavier burden on central government
In the early 1990s, percentage-based revenue-sharing between the national government and the provinces was replaced with a rigid system of minimum revenue guarantees. But provincial authorities used these guarantees as collateral that enabled them to run up significant private-sector debts for which the central government was ultimately responsible. (case P6)

Corruption scandal leaved the government discredited. * A corruption scandal erupted when it was discovered that bribes had been paid to senators in exchange for support of the government’s initiative to bring flexibility to the labor market. (case P3) * In November 2011, Argentina attempted to execute another debt swap, guaranteed by fiscal revenue, but not well received. Instead, capital flight escalated and country risk climbed to 1,700 basis points (Exhibits 8&9 interest rate and bond spread data).

Argentina’s loose fiscal policy
Argentina’s debt increase fast and its currency-board-like arrangement decrease its ability to pay for the debts. * Continued borrowing took Argentina’s public debt as a percentage of GDP from 29% in 1993 to 51% in 2000 (Exhibit 11).The Economist noted: “Instead of printing money, as in the bad old days, Argentina printed bonds to finance

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