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Argentina

Debt statistics 2015

Overall international debt burden (% of GDP)-6.88
Government payments on foreign debt (% of revenue)2.7
Government foreign debt (% of GDP)13
Private foreign debt (% of GDP)8
IMF and World Bank debt cancellation ($ billions)0
Country case studiesYes

Country case study

In the midst of a huge financial crisis, the Argentinian government stopped making payments on many of its debts over Christmas 2001. Since the ‘default’, its economy has been growing, and poverty and inequality falling. Many of Argentina’s creditors agreed a deal to accept 35p for every £1 that was owed. But some private companies, including vulture funds, and western governments, including the UK, have refused to take part in this debt restructuring.

Argentina’s recent run of debt crises began in the 1970s. From 1976 to 1983, Argentina was run by a military dictatorship, which ran a ‘dirty war’ killing or disappearing between 9,000 and 30,000 people. Political parties and trade unions were banned, whilst religious groups had to apply for approval with the state.

Between 1976 and 1983 the military dictatorship was lent $21 billion, compared to $6 billion in the previous eight years. As with many countries at the time, the main lenders were private banks, awash with dollars needing to be lent out due to the high oil prices. Lenders to the military regime also included the UK government, who backed loans for Argentina to buy two warships, two helicopters and missiles, which were later used in the invasion of the Falkland Islands.

A court case in 2000 found that loans to Argentina under the dictatorship were part of “a damaging economic policy that forced [Argentina] on its knees through various methods … and which tended to benefit and support private companies – national and foreign – to the detriment of society”.

At the start of the 1980s, the US government increased interest rates on the dollar. At the same time, world recession led to a collapse in prices for Argentina’s commodity exports. Commodity prices remained low for the next two decades as countries, encouraged by the World Bank, sought to expand production of different commodities. When many countries increased production of the same product at the same time prices plummeted.

The increase in interest rates and fall in revenue from commodities led to a debt crisis for many countries including Argentina. However, Argentina continued to pay its debts, supported by bailout loans from the IMF and World Bank. This prevented the foreign, especially US banks, which had lent the money from being bankrupted.

However, in Argentina poverty and inequality increased dramatically. Between 1986, when official figures begin, and 2002, the number of people living on less than $2 a day increased from less than 100,000 to 9 million. In 1986, for every one peso earned by the poorest 10 per cent, the richest took 16 pesos. By 2001 this ratio had quadrupled to 65 pesos.

During the 1990s Argentina was the IMF’s poster child in Latin America. Along with liberalisation and privatisation, its key IMF approved policy was to fix the exchange rate of the peso to the dollar in order to control inflation. With the fallout from the Asian Financial Crisis, in the late 1990s Argentina entered a recession, the root cause of which was the over-valued currency.

Argentinian government debt had been falling in the 1990s, but with the onset of recession it began to rise. Poverty and unemployment increased dramatically along with the government debt. The IMF and Argentinian government responded to the crisis by cutting public spending, increasing taxes and maintaining the high exchange rate. Yet the government deficit barely fell at all, whilst its total debt, poverty and unemployment kept increasing. Massive protests occurred, famous for the banging of pots and pans.

On Christmas Eve 2001 Argentina defaulted on its debts, and devalued the peso. By defaulting Argentina stopped being able to borrow any more money internationally, although it had little access to new loans by this point anyway. For the first three months after the default, the economy continued to decline. But after a further devaluation and introduction of capital controls to prevent money leaving the country, the economy began to grow rapidly again. Welfare payments were increased to help the poorest cope, while non-IMF approved taxes on exports and financial transactions were introduced to increase government revenue.[i]

In 2005, Argentina finally reached a deal with its creditors where it paid 35p in every pound that was owed. For once lenders also bore some of the costs of the crisis. It is estimated that without the default, 50 per cent of Argentinian government revenue would have been spent on interest payments between 2002 and 2004.

The economy has increased rapidly since 2002, with an average annual growth rate of between 7 and 8 per cent. Poverty has fallen back; today it is estimated around 800,000 people live on less than $2 a day, compared to the 9 million reached by 2002. Inequality is still high but it too has fallen back. Today, for every one peso earned by the poorest 10 per cent, the richest receive 22 pesos.

Some creditors refused to take part in the debt offer. Instead, they are seeking to get repaid in full, plus interest and charges, through bringing cases in US and other courts. These vulture funds and holdouts have so far not been successful in any of their attempts.

Western governments, including the UK, also refused to take part in the debt restructuring. The group of rich countries – known as the Paris Club when negotiating over debts – insist countries follow an IMF programme before they discuss reducing debts owed. Of course, given its record in the country, the Argentinian government and people have refused to countenance following IMF conditions again. Paris Club countries claim they are owed a total of $6.7 billion by Argentina, but payments on these debts are not being made. The UK government says it is owed £45 million; the original loans for which include those to the military dictatorships for warships, helicopters and missiles, in full knowledge of the appalling human rights record of the military junta.



[i] Weisbrot, M and Sandoval, L. (2007). Argentina’s economic recovery: Policy choices and implications. Centre for Economic and Policy Research. October 2007.

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