Introduction
International debt management is a political issue. Argentina’s economic history includes both highs and lows. In 2001, Argentina suffered from one of the world’s economic debacles. The people were forced into unavoidable abject poverty. The government was forced to renege on its debt obligations. Argentina must pay its maturing international obligations.
Causes of Argentina’s 2001 Economic Crisis
There were several causes of the 2001 economic crisis. First, President Carlos Menem pegged the Argentina currency on the United States currency. The pegging occurred from 1991 to 2002. One Argentina peso currency had the same currency value as one U.S. dollar. The currency exchange rate was not beneficial to Argentina’s economy. The exchange rate allowed the liberalization of Argentina’s capital scene. The International Monetary Fund promoted and supported this policy. By lowering the Argentina peso’s exchange rate to the U.S. dollar, the government could balance its payment priorities. With a lower exchange rate, the Argentina export earners sell more products (Buckley 77). Vividly, there are several causes of the 2001 Argentina economic crisis.
Second, Argentina’s President Menem had excessively borrowed from international creditors. The unnecessary borrowings paid for avoidable government excesses (Aliber 99). The spendthrift president did not implement the economically sound austerity measures. Economic theory dictates that the individual or group, including Argentina, must spend within its means. Borrowing money entails paying loan interests. Surely, President Menem contributed to the 2001 economic crisis.
Third, the Argentina government had declining tax collections. With many businesses closing down, the government tax collections had unfavorably declined. Tax evaders did not report the right tax amounts. With lower tax collections, the government could not find enough funds to pay its ballooning international and local debts. The tax collections were lower than the government expenses. Consequently, the government did not have the necessary funds to maintain a robust economy.
The health services as well as the construction of public roads and bridges were unfavorably reduced (Aliber 99). Undoubtedly, declining tax collections triggered the 2001 economic crisis. Fourth, the people withdrew their pesos from the Argentina banks and deposited them as U.S. dollars in other countries. Seeing the Argentina economy was crumbling, many local residents decided to transfer their funds to banks located in other countries. The withdrawals triggered a bank run. Consequently, the Argentina government ordered a freeze of all bank accounts. Definitely, the bank withdrawals caused the 2001 economic crisis.
Fifth, graft and corruption played a vital role in Argentina’s economic downfall. Corruption occurred in many Argentina hotspots. The customs entry point was a prime corruption venue. In 2001, the local Argentina representative of BJ Services bribed Argentina’s customs officers. The company was convicted. In the same year, Argentina’s IBM branch was convicted of corrupting Argentina’s government officers. The branch paid the US$ 300,000 civil fine (Loughman 281). Undoubtedly, graft and corruption caused the 2001 economic debacle.
How the Argentina government stabilized the Economy and Resolved the Poverty Issue
The Argentina government implemented several steps to stabilize the economy and resolve the prevailing poverty issue. First, the government devalued the Argentina peso. The old rate indicated one Argentina peso was equal to one United States dollar. The new Argentina peso was allowed to float to its more realistic purchasing power level. Consequently, inflation caused Argentina peso’s further devaluation. With the cheaper Argentina exports, the international demand for Argentina products increased, stabilizing the Argentina economy (Friedman 1451). Clearly, the Argentina government tried to stabilize the economy and help the poor. Second, the government allowed additional business credits. With the credits, more businesses were established. With more business establishments, more people were hired. Consequently, the unemployment rate declined. The poverty level shrank (Price 87). Evidently, the business credits spurred the economy.
Third, the government’s tax collection efforts were prioritized. With more stringent tax monitoring, the government filed tax evasion charges against many scrupulous companies. Fines and other penalties were levied on the tax evaders. With the tax evasion charges looming over the heads of the business owners, more owners paid the right amount of taxes. With more taxes, the government was able to pay more maturing financial obligations (Bergman 138). In a crystal clear manner, increased tax collection should be implemented.
Fourth, the government allocated more funds for poverty alleviation. The poor were able to get better healthcare services. The poor had more access to other government services. More funds were funneled to educating the poor residents. The Mesa policy guaranteed the citizens receive a minimum income. The same policy focused on supplying poor people’s food needs and medical requirements. The export taxes and the government’s Programme for Male and Female Unemployed Households policy helped the poor during their economic plight (Mosley 262). Without a doubt, more budget amounts were allocated to poverty resolution.
In 2001, the new government implemented austerity measures. Unnecessary travel and other avoidable operating expenses were reduced. Avoidable infrastructure expenditures were postponed. In 2001, a new government president was elected. The new government of President Dela Rua implemented austerity measures. The voters opted to kick out the spendthrift government of President Carlos Menem from office (Hunter 336). Surely, austerity measures should be in place.
Reasons Why Argentina is Stalling the Payment of its Remaining International Debts
The government has been stalling the payments of the remaining international debts. The reasons are obvious. The country needs funds to pay for its government expenses. The expenses include the salaries of government employees. The employees include soldiers, police officers, government hospital medical staff, public school teachers’ salaries, and other government employees. The government must pay for the repair, maintenance, and construction of roads and bridges. Surely, the government is delaying debt payments (Edwards 331).
If the government allocates the amounts allocated for salaries and other government expenditures to pay all its maturing debts, the government may have to a chaotic nation. The nonpayment of the government employees’ salaries may result to work stoppage. The absence of unpaid police officers will create traffic jams and increase criminal activities. Stopping the construction of necessary roads and bridges may trigger traffic accidents and deaths. More patients will die in unattended government hospitals. In 2001, Argentina’s President Adolfo Rodriguez Saa’s policy focused on shifting money allocated to pay for the international debts to create more than a million jobs for the poor unemployed residents. President Saa used the funds for compulsory poverty alleviation programs (Edwards 331). Evidently, the delayed debt payments prevented chaotic scenes.
Argentina Should Pay its Maturing International Debts
Argentina should slowly pay its remaining international debts. The international community’s financial decisions are based on several factors. One such factor is the capacity to pay one’s maturing obligations. If Argentina will not pay its maturing debts, its credit rating will drop. With a low credit rating, the nation may not be able to find money lenders. Without borrowed funds, the government will not be able to pay its maturing obligations (Hornbeck 4). Without a doubt, Argentina must pay its maturing debts.
Argentina can implement several debt payment strategies. First, Argentina can ask for the canceling of some or all of its international debts. Second, Argentina can ask donations from rich countries. The donations will be used to pay the maturing debts. Third, the Argentina government can ask for debt restructuring. Under this method, the debt time period is increased. With the extension, the monthly maturing obligations are reduced. In 2005, the Argentina government chose the third strategy (Hornbeck 4). Undoubtedly, Argentina must pay its t debts.
Further, Argentina eagerly strives to pay its debts. In 2002, the International Monetary Fund approved the government’s debt restructuring program. In 2005, Argentina tried to pay its maturing debts. The nation offered to replace the debts with bonds. Of the $82 billion debt, $21billion was the interest component. The offer was accepted. New bonds amounting to $35 billion was used to pay the $62 billion portion of the entire $82 billion debt. However, the new agreement broke down (Hornbeck 4). Undoubtedly, Argentina enthusiastically strives to comply with loan agreements
Conclusion
International debt is a priority government issue. In 2001, Argentina went through an economic crisis. Argentina was able to service some of its maturing debts. Argentina has some remaining international debts. Overwhelmingly, the Latin American nation must pay its maturing international commitments.
Works Cited
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Bergman, Marcelo. Tax Evasion and the Rule of Law in Latin America. New York: Penn State Press, 2011. Print.
Buckley, Ross. International Financial System. New York: Kluwer Law , 2009. Print. Edwards, Sebastian. Capital Controls and Capital Flows in Emerging Economies. New York: University of Chicago Press, 2009. Print.
Friedman, Benjamin. Handbook of Monetary Economics. New York: Elsevier Press, 2011. Print.
Hornbeck, Jeff. Argentina’s Defaulted Soveriegn Debt: Dealing with the “Holdouts”. New York: Diane Press, 2010. Print.
Hunter, David. International Financial Institutions. New York: Kluwer Law, 2010. Print. Loughman, Brian. Bribery and Corruption: Navigating the Global Risks. New York: J. Wiley & Sons, 2011. Print.
Mosley, Paul. The Politics of Poverty Reduction. New York: Oxford University Press, 2012. Print.
Price, John. Can Latin America Compete? New York: Palgrave Macmillan, 2008. Print.