International Monetary Fund's intervention during crisis in emerging countries. Case study of Argentina

• Author: Andronic (Bratulescu) M.L.
• Pages: 149-170

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 10 (59) No. 2 - 2017

International Monetary Fund’s intervention during

crisis in emerging countries. Case study of Argentina

Maria Letiția ANDRONIC (BRĂTULESCU)1

Abstract: We addressed the theme of the IMF’s intervention in Argentina because we found

it challenging to discover how an emerging state with potential could have passed through

all economic phases in just a few years. First, the empirical analysis proved that the

continuous involvement of international organizations does not always have positive effects.

This study aims to analyse the external debt, a cause of the economic collapse of 1998-2002,

and what the authorities should had done to stop it. Second, in order to highlight the reasons

why not only the right measures were taken, we applied an econometric model with four

exogenous variables for 1987-2015. The external debt should have been restructured at the

level of each creditor, but also with respect to the total amounts borrowed. At the same time,

the private debt boom should have been stopped by stimulating competition during crisis.

Key-words: external debt, financial crisis, IMF inte rvention, emerging economies,

Argentina

1. Introduction

One of the largest economies in Latin America, Argentina, is currently undergoing

an economic transformation that promotes sustainable economic development with

social inclusion and integration into the global economy.

However, 15-20 years ago, Argentina went through an unexpected and

extremely severe crisis that raised many questions about what could have been done

at that moment and before to avoid the drama of a nation. It also gave the whole

world a lesson from which everybody should learn even today. History proved that

all economic recessions became, sooner or later, taboo issues. Statistical results

showed they had a rather psychological connotation than an economic one. Between

1998 and 2002, Argentina went through an identity crisis, more severe than the

latest one (2009-2013), when both the national leaders and the international

organizations were more like some detached observers who seemed to accept the

situation as a moment whose settlement will be eventually decided in time.

1 Transilvania University of Braşov, letitia.andronic@unitbv.ro

Bulletin of the Transilvania University of Braşov - Vol. 10 (59), No. 2 - 2017 • Series V

150

In this research paper, we address the theme of the International Monetary Fund’s

intervention during crisis in emerging countries because we found it challenging to

discover how countries with socio-human and economic potential like Argentina can

pass through several economic phases in just a few years. It has thus showed the

world that the main danger of the modern economy is the financial crisis and its

socio-economic effects. Early this century these economic paradigms were fleeting

moments that were easily overcome. As society evolved and culminated in the IT

revolution and in an intensified economic globalization, the crisis has become a real

phenomenon which can occur spontaneously. Even more, a crisis has the power to

abolish economic theories.

As we mentioned before, we chose to build the case study around Argentina

as it presents one of the most dynamic and complex accumulation of events that a

country could pass through over several years, leaving behind confusion, doubts and

questions about the trend towards which the current economy is heading. In this

article, we created a mostly economic view on the topic and we may begin by stating

that Latin American countries are a role model in terms of economic

management. For this reason, we chose to analyse and understand how these

economies work, beyond Europe and the USA, as their systems are very well

known.

The information needed for this paper was obtained from the archives of the

International Monetary Fund, the World Bank and the chronology of records and

archived studies in Argentina, especially those kept by the Ministry of Economy and

Public Finance.

The main purpose of the research is to prove that the monitoring and

continuous involvement of international organizations does not always lead to

benefits. In addition, the simple creation/existence of financial institutions does not

necessarily bring stability to the world. Besides these aspects, the idea of excessive

economic globalization might lead as well to neutral or even negative results like the

loss of national identity. When these combine with irrationality and corruption,

everyone will ultimately suffer. The case study deals with the problem of external

debt in Argentina, a cause of the economic collapse. In addition to this, we highlight

the role that the IMF and other national and international authorities should have

played so that the negative effects of the depressions were brought to a halt and

would not degenerate, affecting an entire country.

Besides this introduction part, the structure of this research paper consists of

four more sections. The first half of section 2 presents the specific literature

regarding the IMF attributes and actions in the countries that appealed to its

financial support. In the other subsection of this chapter, we illustrated some

theoretical aspects regarding the timing, target, system of organization and

intervention mechanisms of the IMF needed to achieve a successful and sustainable

economic growth and to help countries overpass the economic, monetary and

financial disturbances. We took into consideration what the specific literature