The “corralito” of 2001, a “leap into the void” that still impacts Argentina

The banking corralito in Argentina, whose creation was completed last Wednesday 20 years, constituted a “leap into the void” that only accelerated the outbreak of one of the worst economic, social and political crises in the country and whose consequences still impact on its complex economy.

The restrictions to withdraw the money deposited in the banks were decreed on Saturday, December 1, 2001 and came into effect two days later, opening the way to a wave of protests and looting that would culminate in the violent days of December 19 and 20 and the resignation of the then president, the radical and now deceased Fernando de la Rúa (1999-2001).

“They crossed a border that could not be crossed. They jumped into the void, almost a socialist measure, not allowing people to get their own money beyond a weekly limit ”, explained economist Pablo Tigani, consultant, university professor and who has dedicated a good part of his research to the crisis of 2001.

The “corralito” came to stop, in a radical way, the strong drain that the financial system suffered due to mistrust in the soundness of the entities and the fear of a devaluation.

With no antecedents in the world, the “corralito” was created by the then Minister of Economy Domingo Cavallo, a neoliberal economist who had joined the De la Rúa Executive in March 2001 and inventor in 1991, during the government of the Peronist Carlos Menem ( 1989-1999), of the “one-to-one” convertibility regime between the Argentine peso and the US dollar, created to end the hyperinflation of 1989-1990.

Two decades after the drastic measure, the consensus of economists is that the “corralito” could have been avoided by abandoning, in a timely and orderly manner, that exchange system that, by law, prohibited the issuance of money to finance the Treasury, forcing to increasingly resort to external indebtedness.

Recession and crisis

Argentina had been in recession since 1998. Problems worsened when international debt markets and the International Monetary Fund (IMF) withdrew support for the country, the Treasury and the provinces were left without financing, the dollarization of deposits accelerated and their exit from the banks and money reserves plummeted.

“The corralito was inevitable because, if people continued to withdraw the money, the banks would melt. But the government, by restricting the use of cash, ignored the great informality of the suburbs of Buenos Aires. Those people turned to the mischief, “said economist Jorge Colina, president of the Institute for Argentine Social Development.

The anger of the bank customers soon turned into a general social protest that led to the resignation of De la Rúa.

A few days later, Argentina declared the cessation of payments, for US $ 102,000 million, and then it came out of “one to one” and devalued its currency.

In January 2002, the Peronist Eduardo Duhalde, provisional president of Argentina until 2003, further deepened banking restrictions by creating the “corralón”, transforming bank deposits in dollars into devalued Argentine pesos.

Aftermath that last

The “crash” of late 2001 wreaked havoc on the economy, which collapsed 10.9% in 2002, with a poverty rate that soared to 57.5% and unemployment jumped to 24.1%.

Although economic activity recovered vigorously in the subsequent five years, that crisis left consequences whose effects still linger: Argentina, which suffered a deep recession between 2018 and 2020, remains in debt, with high inflation and fiscal problems.

The fear of being a prisoner of the “corralito” continues to haunt, like a ghost, in the heads of many Argentines, while international investors do not forget the “default” of 2001 and subsequent debt restructurings.

Without the possibility of financing in international markets, in 2018, the option of the then government of the conservative Mauricio Macri (2015-2019) was to request financial assistance from the IMF for about US $ 44,200 million, a debt that now Argentina cannot pay and is seeking renegotiate.

And the current means of financing the country is the monetary issue, with inflationary effects that are increasingly difficult to tame.

“The exit from convertibility in 2002 opened the door to refinance the fiscal deficit with monetary issuance, which is what led us, 20 years later, to the crisis we have now,” said Colina.

Except for a few years, since 2002 Argentina has had annual inflation rates greater than two digits. In fact, this year will end with a jump close to 50%, higher than the 41% that was registered in 2002 after that “leap into the void” that will remain in history.