The banking “corralito” in Argentina constituted a “leap into the void” that did nothing more than accelerate the outbreak of one of the worst economic, social and political crises that the South American country remembers and whose consequences still impact its complex economy.
The restrictions to withdraw money deposited in 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 took a leap into the void, almost a socialist measure, not allowing people to withdraw their own money beyond a weekly limit,” economist Pablo Tigani, consultant, university professor, explained to Efe. and who has devoted much of his research to the 2001 crisis.
The “corralito” came to stop, in a radical way, the strong bleeding that the financial system suffered due to mistrust in the solidity of the entities and the fear of a devaluation.
Without precedent in the world, the “corralito” was created by the then Minister of Economy Domingo Cavallo, a neoliberal economist who had joined the Executive of De la Rúa 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 put an end to 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 issuing of money to finance the Treasury, forcing to resort increasingly to external borrowing.
recession and crisis
Argentina had been in recession since 1998. The problems worsened when the international debt markets and the International Monetary Fund (IMF) withdrew support from the country, the Treasury and the provinces were left without financing, the dollarization of deposits accelerated and their exit from the banks and monetary reserves plummeted.
“The corralito was inevitable because, if people continued to withdraw money, the banks were going to melt down. But the government, by restricting the use of cash, ignored the great informality of the suburbs of Buenos Aires. Those people turned to the out of hand,” economist Jorge Colina, president of the Institute for Argentine Social Development, told Efe.
The fury of bank customers soon turned into widespread social protest that led to De la Rúa’s resignation.
A few days later, Argentina declared the cessation of payments, for 102,000 million dollars, and then left the “one to one” and devalued its currency.
In January 2002, the Peronist Eduardo Duhalde, interim president of Argentina until 2003, also deepened banking restrictions by creating the “corralón”, transforming bank deposits in dollars into devalued Argentine pesos.
Sequels that last
The “crash” of late 2001 wreaked havoc on the economy, which collapsed 10.9% in 2002, with the poverty rate soaring to 57.5% and unemployment jumping to 24.1%.
Although economic activity recovered vigorously in the subsequent five years, that crisis left consequences whose effects are still lasting: Argentina, which suffered a deep recession between 2018 and 2020, remains indebted, with high inflation and fiscal problems.
The fear of being once again 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 restructuring.
Without the possibility of financing itself in international markets, in 2018, the option of the then conservative government Mauricio Macri (2015-2019) was to request financial aid from the IMF for some 44.2 billion dollars, a debt that Argentina now cannot pay and seeks to renegotiate. And the current way 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 issue, which is what led us, 20 years later, to the crisis we have now,” Colina said.
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 recorded in 2002 after that “jump into the void” that will go down in history.
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