C and I, preparing for our upcoming vacation in Buenos Aires, have been reading guidebooks including the Buenos Aires City Guide of the Lonely Planet series in which you will find this startling bit of history:
As an economic crisis deepened into a recession, voters turned to the mayor of Buenos Aires, Fernando de la Rua, and elected him president in 1999. He was faced with the need to cut public spending and hike taxes during the recession.
The economy stagnated further, investors panicked, the bond market teetered on the brink of oblivion and the country seemed unable to service its increasingly heavy international debt. Cavallo was brought back in as the Economy Minister, and in January 2001, rather than declaring a debt default, he sought more than US$20 million more in loans from the IMF.
Argentina had been living on credit and it could no longer sustain its lifestyle. The facade of a successful economy had been ripped away, and the indebted weak inner workings were exposed. As the storm clouds gathered, there was a run on the banks. Between July and November, Argentines withdrew about US$20 billion from the banks, hiding it under their mattresses or sending it abroad. In a last ditch effort to keep money in the country, the government imposed a limit of US$1000 a month on bank withdrawals. Called the "corralito" (little corral), the strategy crushed many informal sectors of the economy that function on cash (taxis, food markets), and rioters and looters took to the streets. As the government tried to hoard the remaining hard currency, all bank savings were converted to pesos and any remaining trust in the government was broken. Middle class protestors joined the fray in a series of pot-and-pan banging protests, and both Cavallo and then de la Rua resigned.
Two new presidents came and went in the same week, and the world's greatest default on public debt was declared.
The peso devalued rapidly and people's savings were reduced to a fraction of their earlier value. In January 2002, the banks were only open for a total of six days and confidence in the government was non-existent. The economy ceased to function: cash became scarce, imports stopped and demand for non-essential items flat-lined. More than half of the fiercely proud Argentine people found themselves below the national poverty line: the once comfortable middle class woke up in the lower classes and the former lower classes were plunged into destitution. Business people ate in soup kitchens and homelessness became rampant.
This story has a happy ending, with Argentina eventually settling its US$9.5 billion international debt in 2006. Still, inflation went crazy. The only thing that saved Argentina was international tourism.
Is it wrong to fear that New York City might be plunged into rioting and looting if nothing is done to stop the dominoes from falling in our current crisis?