In the 1979-90 period, the Argentine economy was characterized by a high rate of inflation, recurrent balance of payments difficulties and frequent changes in the direction of economic policies.
Starting from the end of 1978, the government, to lower expected inflation, began to announce what the exchange rate would be in the following months, imposing a slowdown at the rate at which the exchange itself was depreciated. This move was accompanied by a decrease in the rate of monetary expansion, but not by restrictive fiscal policies, thus favoring high interest rates. Between 1978 and 1980, inflation fell from 175 to 100 percent. However, this decrease was less than that forecast by the government and was not sufficient to avoid a progressive appreciation of the exchange rate in real terms. There was therefore a deterioration in the current account balance, the deficit of which rose to nearly $ 5 billion in 1980.
In 1981-82 the Argentina it went through a period of profound economic crisis. GDP contracted overall by 12% in real terms over this period. In April 1981 the policy of announcing the trend of the exchange rate was abandoned and it was significantly depreciated; subsequently a double exchange market was created for commercial and financial transactions. However, large balance-of-payments imbalances continued to occur due to persistent high current account deficits and capital flight. These imbalances were financed through a massive recourse to foreign debt which, between the end of 1979 and that of 1982, rose from 20 to 44 billion dollars.
At the end of 1981 an austerity program was adopted and the foreign exchange market was unified. However, these policies were interrupted following the war experience in the Falkland Islands in the spring of 1982. The new government that took office in June tried to revive the economy through an expansionary wage policy and lower interest rates. . At the end of 1982, a reorganization program agreed with the International Monetary Fund was adopted, which included restrictive financial and wage policies and a significant depreciation of the exchange rate. However, consolidation efforts were relaxed during 1983 during which there was a sharp rise in inflation which rose to 350%.
In the first nine months of 1984, the government tried to reduce the rate of inflation by predetermining, from month to month, the development of some key variables including the prices of certain goods subject to control, the exchange rate and interest rates. However, inflation continued to rise, exceeding 600%, also due to accommodative financial and wage policies. A new agreement was therefore reached with the IMF on a consolidation program which, however, was only implemented for a few months.
In 1985, according to ebizdir, the Plan Austral was adopted with the aim of eliminating inflation, which has reached over 1000%. The plan included the reduction of the public deficit, restrictive monetary policies, the freezing of prices and wages. The exchange rate was pegged to the US dollar and a new currency unit, the australian, was introduced. Inflation decreased and there was a recovery in production, but in 1986 new balance of payments difficulties arose due to the fall in the prices of some agricultural exports and the growth in imports due to the increase in domestic demand. Inflation escalated in 1987 and production declined; the worsening terms of trade caused an increase in the current account deficit ($ 4.3 billion) and
A new consolidation program was adopted in 1988, but the year ended with a marked decline in GDP and an acceleration in inflation. THERE. decided to temporarily block the repayment of the foreign debt. In 1989 the crisis deepened further: inflation reached very high levels, while the Australian depreciated steadily against the dollar. The government responded with public sector restructuring policies, price increases for various public services, privatization and deregulation, greater openness to foreign investment, but met with strong opposition. Following the crisis and the limited success of the measures adopted, both the World Bank and the IMF suspended some previously granted loans.
In 1990, thanks to further tightening measures, inflation slowed and Aussie stabilized. Both the IMF and the World Bank have reopened their lines of credit. At the beginning of 1990, the Argentina it also reached an agreement for the renegotiation of its foreign debt with various countries.