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Last Updated: Monday, 19 December 2005, 22:44 GMT
The day Argentina hit rock bottom
By Max Seitz
BBC News

When, four years ago, Argentina's economy hit rock bottom, it came as a shock, even to locals accustomed to hardship following a string of crisis since the 1930s.

Nobody had expected the country to fall this deep.

A demonstrator shouts anti-government slogans on 20 December in Buenos Aires
Turbulent times: Argentina had five presidents in just 10 days

Argentines will always remember 2001 as the year of the country's worst crisis, on a personal as well as on a financial and political level.

"We had the worst Christmas and New Year of our lives," recalls Isabel Garcia, 62, a psychologist who works in the public sector.

"We were all very depressed and sad. There was no mood to celebrate and no cash to buy presents."

Massive debt default

These were desperate times for the country's people.

It all begun when, after a lengthy recession, President Fernando de la Rua resigned on 20 December, amid violent street protests in which 25 people were killed.

We have less work and we could not keep up our mortgage repayments
Isabel Garcia

The subsequent political instability led to four presidents succeeding him in only 10 days.

Soon bank accounts were frozen and the currency - the peso - was devalued, ending a decade-long fixed link with the US dollar.

Thousands of people saw their life savings disappear.

"It was a catastrophe for us," says Ms Garcia.

"As the economy ground to a halt, we had less work and we could not keep up our mortgage repayments. We felt totally impotent."

Argentina then made history with the largest ever sovereign debt default of more than $80bn (42bn).

The country, whose wealth rivalled that of France seven decades ago, was lying in ruins, its face to the ground.


Politicians were quick to blame the economic policies dictated by the International Monetary Fund, something the multilateral institution has consistently rejected.

What is certain is that the middle-classes were left cash-strapped and poorer, and poverty expanded to half the population. Unemployment soared to 20%.

A family begging on the street in Argentina
Many still await the benefits of the economic upturn

Civil engineer Ricardo Leuzzi, 40, works in the building sector. He remembers very well how he and his workers had a difficult time following the meltdown.

"My savings were frozen, and the bank would not understand that these funds were being used in a construction project, so we were left stranded," he says.

"I promised myself to never deposit money in a bank again."

Politicians' credibility also hit rock bottom. "All should go," was the most common heard chant, accompanied by banging pans, at protests during the collapse.

Ms Garcia took part in one of the popular assemblies spontaneously set up in Buenos Aires to try to find a direction in the midst of the economic and political chaos.

"Although demands among participants were very diverse, all the people agreed that a profound change was needed in Argentina. I think that, in some way, this explains the recovery that followed," she says.

Back to growth

Argentina's economy started to climb out of the crisis in 2003.

"The turnaround was remarkable," says economist and former minister Aldo Ferrer.

"Agricultural exports hit a record high thanks to a cheaper peso and the growing demand of Asian markets, and the country attracted more investments."

I think recovery was mostly thanks to a better command of the economy and a clearer sense of direction
Economist Aldo Ferrer

Argentina also managed to restructure its massive debt, offering creditors new bonds for the old, defaulted ones.

Now Latin America's third largest economy is growing at a rate of nearly 8% and unemployment has fallen to 10%.

Last week, President Nestor Kirchner said Argentina would pay its $10bn debt to the IMF three years early.

"That's good news," says Mr Ferrer.

"I think the recovery was mostly thanks to a better command of the economy and a clearer sense of direction."

Poverty still rife

But macroeconomic figures, however rosy, rarely paint a true picture of the lives of ordinary Argentines, and neither does the first impression that greets visitors to Buenos Aires, a lively middle-class city.

Gabriel Tabacinic
Salaries are well behind the inflation index, and the government should do something about it
Gabriel Tabacinic

But travel through the interior of the country, and it becomes clear that poverty is still rife and that many still await the benefits of the economic upturn.

"Fighting poverty is obviously the main challenge, although some social programmes have helped to alleviate it," Mr Ferrer acknowledges.

Inflation, which has been a chronic problem in Argentina, is once again a looming threat to consumers, while salaries are losing ground.

Accountant Gabriel Tabacinic, 30, says wages have not yet fully recovered and that, because of this, workers are still paying the price of the 2001 crisis.

"Salaries are well behind the inflation index, and the government should do something about it," he says.

The country has yet to find a resolution to a deadlock with the mainly foreign-owned utility companies, which had their tariffs converted into devalued pesos and then frozen.

Again in disarray?

Lack of faith in institutions, especially among the young, is another deep scar left by the crisis that time has yet to heal.

A recent opinion poll suggested that politicians remain very unpopular - their public approval rating is lower than that of the armed forces, in a country which had a violent military rule.

Argentine President Nestor Kirchner
Mr Kirchner's successor might not change economic policies

"I'm still worried about the lack of judicial safeguards," says Mr Leuzzi. Others worry about the way a change in government could spark changes in economic policy, and fresh chaos.

"I hope not. The next president, whoever he might be, might not change direction," believes Mr Ferrer.

Local politicians like to say that the country has learnt the lesson of the 2001 meltdown.

But many Argentines acknowledge that they have yet to pass several tests for the country to regain credibility.

Argentina to pay off debt early
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Argentine restructuring 'success'
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Timeline: Argentina
31 Dec 04 |  Country profiles
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13 Jan 05 |  Business
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15 Mar 06 |  Americas
The night Argentina said 'enough'
20 Dec 01 |  Americas

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