tional mail: use street address; APO address: Unit 4334,
APO AA 34034 telephone: [54] (11) 5777-4533 FAX: [54] (11) 5511-4240

Flag description: three equal horizontal bands of light blue (top),
white, and light blue; centered in the white band is a radiant yellow
sun with a human face known as the Sun of May

Economy Argentina

Economy - overview: Argentina benefits from rich natural resources,
a highly literate population, an export-oriented agricultural sector,
and a diversified industrial base. However, when President Carlos MENEM
took office in 1989, the country had piled up huge external debts,
inflation had reached 200% per month, and output was plummeting. To
combat the economic crisis, the government embarked on a path of trade
liberalization, deregulation, and privatization. In 1991, it implemented
radical monetary reforms which pegged the peso to the US dollar and
limited the growth in the monetary base by law to the growth in reserves.
Inflation fell sharply in subsequent years. In 1995, the Mexican peso
crisis produced capital flight, the loss of banking system deposits,
and a severe, but short-lived, recession; a series of reforms to bolster
the domestic banking system followed. Real GDP growth recovered strongly,
reaching 8% in 1997. In 1998, international financial turmoil caused by
Russia's problems and increasing investor anxiety over Brazil produced
the highest domestic interest rates in more than three years, halving the
growth rate of the economy. Conditions worsened in 1999 with GDP falling
by 3%. President Fernando DE LA RUA, who took office in December 1999,
sponsored tax increases and spending cuts to reduce the deficit, which
had ballooned to 2.5% of GDP in 1999. Growth in 2000 was a negative
0.5%, as both domestic and foreign investors remained skeptical of the
government's ability to pay debts and maintain the peso's fixed exchange
rate with the US dollar. The economic situation worsened still further in
2001 with the widening of spreads on Argentine bonds, massive withdrawals
from the banks, and a further decline in consumer and investor confidence.
Government efforts to achieve a "zero deficit", to stabilize the banking
system, and to restore economic growth proved inadequate in the face
of the mounting economic problems. At the start of 2002, newly elected
president Eduardo DUHALDE met with IMF officials to secure an additional
$20 billion loan, but immediate action seemed unlikely. The