For over ten years Argentina maintained its currency at an artificially high level. In early 2002, however, the country was plunged into the worst economic crisis of its history when devaluation could no longer be put off. After a decade of stability, the so-called Law of Convertibility that pegged the peso to the dollar finally ran out of road. The result was an almost overnight devaluation in the national currency by some 350%. When this occurred, private bank accounts were frozen and those people who had merrily lived off the 20% dollar interest from their accounts, (while the rest of the world was receiving 3% and less, lest it be forgotten), suddenly discovered themselves locked out of the bulk of their funds. Worse still, they found the little they could gain access to was paid in Argentine pesos, representing a loss of around 200% in hard currency terms on their original deposits. No wonder they rioted. Devaluation was long overdue. The peso/dollar exchange generated high domestic costs in dollars on all fronts: badly inflating electricity supplies and other public services while pushing up taxes and interest rates to astronomical levels.
展开▼
