WASHINGTON: The International Monetary Fund (IMF) said yesterday that long-standing weaknesses in Argentina's economy led to its collapse in 2001, while the global lender acknowledged that its own shortcomings had prevented it from detecting the looming crisis.
In a self-examination of the handling of the crisis, the IMF said it could not single out the sole source of the crash but realised there were several key lessons to be learned, including the need to strengthen its surveillance mechanisms.
“Argentina's experience, with serious imbalances emerging in a country once regarded as a 'star performer', underscores the need for strong and effective fund surveillance in all countries,” the IMF said in its assessment.
Reasons for the 2001 collapse in Argentina, hailed as a poster child for emerging markets less than five years earlier, have been widely debated by economists, including whether the fund should bear some responsibility for what happened.
Argentina had been under the close scrutiny of an IMF programme when the decline started. Soon after the IMF cut off funding to Argentina in December 2001, the country defaulted on its public debt and abandoned its fixed exchange rate.
In the evaluation, the IMF said Argentina's deteriorating public debt dynamics, driven mainly by off-budget spending, was central to the crash, as well as constraints on monetary policy imposed by a currency board, and structural and institutional weaknesses.
The fund also pointed to the role of the private financial community, saying investors continued to finance Argentina's growing borrowing needs even as problems – and a recession in 1998 – were evident.
The IMF acknowledged that its growth projections for Argentina during the 1990s were wrong, which led to complacency about the country's fiscal performance. – Reuters
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