Four Financial Crises in Argentina: a comparative study into the causes

Abstract: This study is concerned with exploring the causes for four financial crises in Argentina’s history stretching from 1890 to 2002 and with comparing the causes in order to find recurring problems. I will argue that the crisis in 1929-1932 is the one differing from the other three on several aspects: its prime causes were external; the public deficits were modest; there was no sudden stop in inflow of foreign capital; it was better managed; and it was not preceded by financial deregulation. All this meant that Argentina in the 1930s managed to avoid debt default and a major bank crash, which could not be averted in the other crises. Further, I will claim that there is support for the explanation that deregulation of the financial sector can, if badly managed, contribute to financial crisis. Then, I find that an appreciating real exchange rate was a problem in all four periods, and that a rigid currency policy was a central problem in two crises. In all four crises, political turmoil aggravated the economic development by creating uncertainty. Finally, large public deficits in combination with large external capital inflows led to the build-up of debts to unmanageable levels in three of the four crises.