Argentina's 2001 Collapse

In 1991, after years of hyperinflation, Argentina adopted the Convertibility Plan devised by economy minister Domingo Cavallo, fixing the peso one-to-one with the US dollar through a currency board. Inflation vanished and growth returned. But the fixed rate meant Argentina could not devalue when Brazil devalued in 1999 and the dollar strengthened, so its exports became uncompetitive. A recession beginning in 1998 deepened, government debt rose, and much of it was in dollars.

As depositors withdrew funds, the government in December 2001 restricted bank withdrawals, a measure called the 'corralito', sparking mass protests and deadly riots. President Fernando de la Rúa resigned, several interim presidents followed in quick succession, and Argentina defaulted on about $100 billion of debt, then the largest sovereign default in history. In early 2002 the peso was devalued and floated, losing about three-quarters of its value, and poverty rose sharply.

The crisis became a lesson in the risks of rigid pegs combined with foreign-currency debt.