And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina | Paul Blustein

Summary of: And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina
By: Paul Blustein


Dive into the gripping story of Argentina’s financial bubble and the catastrophic consequences that resulted from economic mismanagement, conflicts of interest, and poorly designed regulations in Paul Blustein’s book, ‘And the Money Kept Rolling In (and Out) Wall Street, the IMF, and the Bankrupting of Argentina’. Get an insightful look into the role of international investment banks, the Argentine government, and international regulators during the country’s period of euphoric optimism followed by a disastrous economic collapse. Understand the implications this historical event holds for the global financial market and the potential for similar crises in the future.

Argentina’s Economic Collapse

The story of Argentina’s economic collapse is one of greed and irresponsible regulation that led to tremendous suffering. Major international investment banks and brokerage firms collected about $1 billion in underwriting Argentine bonds from 1990 to 2000, and security analysts painted too rosy a picture of the investment quality of Argentine bonds, while the Argentine government failed to exercise fiscal discipline. The collapse had severe consequences for the economy, people, and the world, and provides ample ammunition for the antiglobalization movement. Overall, a timeline of the Argentine collapse shows plenty of blame to go around.

Argentina’s Economic Collapse

At the beginning of the 20th century, Argentina was a prosperous nation with a bright future. However, after years of hyperinflation and poor economic performance, the country’s new economy minister, Domingo Cavallo, adopted a new system called “the convertibility system,” which fixed the exchange rate at one Argentine peso to $1 to establish financial discipline. Despite some initial doubts, the system successfully tamed hyperinflation and set a monetary foundation for growth. To further stimulate the economy, the Argentine government deregulated industry, removed trade barriers, and privatized government enterprises. The new economic order seemed to succeed splendidly, but investors’ eagerness to buy Argentine bonds allowed the country to incur debts beyond prudent levels. As debt levels climbed, the IMF began to worry about Argentina’s long-term solvency, but market confidence remained high. However, things changed when the Russian default and the collapse of a major hedge fund put the entire global financial system at risk. The IMF backed away from an ultimatum to reform the labor market and instead invited the Argentine president to address the annual meeting of the IMF and World Bank. Despite warnings, the market shrugged off the challenges, and Argentina ultimately faced a devastating economic collapse.

The Tragic Story of Argentina’s Debt Crisis

The Argentine financial crisis of the early 2000s was a tragic tale of a country caught in a vicious cycle of debt, recession, and political instability. When Brazil devalued its currency in 1999, Argentina’s exports became more expensive, leading to falling exports and hard currency earnings. This, coupled with falling worldwide commodity prices, led to shrinking revenues and larger budget deficits. As market skepticism grew, Argentina found itself borrowing heavily to cover its debts. The IMF approved a $14 billion loan in 2001, but with the political and economic situation worsening, it was apparent the country would have to restructure its debts. The strict 1:1 exchange rate of Argentina’s convertibility system made it impossible to respond to the recession with an accommodating monetary policy, but ending it would be neither simple nor straightforward. The Argentine story moved with tragic inexorability, and by December 2001, the presidency was a revolving door, protests erupted, and the peso convertibility program ended.

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