Larry Liu (Liam Ching Liu) 3/30/2013 The Argentinian Debt Crisis of the Early 2000s: A Sociological and Historical Analysis In 2001 and 2002, Argentina experienced one of the worst economic crises in its history. Output was reduced by 20% in a three year time period (Daseking et al. 2004), inflation increased from -0.9% in 2000 to 41% in 2002. 1 The unemployment rate increased from 15% in 2000 to 21.5% in 2002. 2 GDP growth reverted from 0.8% of GDP in 2000 to -14.7% in 2002. 3 During this time period of the early 2000s, Argentina went through an enormous debt crisis. Government debt had increased from 43% of GDP in 2000 to 165.3% in 2003. 4 These enormous debts forced the Argentinian government to first accept an IMF loan offer and structural adjustment conditions (especially between 1999 and 2001), and then to repudiate the adjustment process with a selected default in late 2001 (Hornbeck 2002). While some loans were maintained, creditors had to accept a 70% cut in the value of their holdings through debt restructuring (Helleiner 2005, 951). Ever since the devaluation, the Argentinian economy has improved enormously thanks to greater export to China and Brazil (Lopez 2011, 429), and generous loan support from Venezuela (Baribeau 2005). In this paper, I will describe the conditions under which Argentina developed and resolved its debt crisis, using the historical perspective of institutional development espoused by Paul Pierson (2004). I will then tie the analysis of the Argentinian debt crisis to the current debt crisis in the Eurozone, and will conclude with a theoretical conceptualization of state debt as a social relation, drawing on Marxian and Weberian conflict themes. In regard to the Argentinian debt crisis, I find that the Argentinian decision to cancel most of the debts have contributed to the positive economic performance of the Argentinian economy. Before I start with my investigation of Argentina, I will briefly describe Pierson's theoretical scheme of institutional development. Pierson argued that the political development of institutions happen over periods of time, and the first policy outcome determines future policy outcomes. Once policy-makers have implemented a policy it produces certain positive results for those in power that further policies reinforce the existing policies. He called this scheme 'path dependence'. This scheme helps explain historical continuity. Argentina, which has been trapped in a severe debt crisis in the early 2000s, has been placed into an economic framework that resulted in its debt dependence. Few debtor countries have been capable to completely free themselves from the fiscal constraints they operate in. Pierson's most interesting contribution, however, is the acknowledgment that a historical framework is important when explaining the political-economic circumstances of the country, either of the past or present. According to this model, it would be as inaccurate to draw negative conclusions about Argentina's economic future back in 2001 (Daseking et al. 2004; Veigel 2005) as it would be to draw overly optimistic conclusions about the same economy in 2011 (Weisbrot 2011). The Argentinian debt crisis was preceded by economic developments going back to the 1970s. Argentina opened up private access to external finance, which was part of a market friendly reform (Damill, Frenkel and Rapetti 2013, 298). External finance was available due to the oil crisis of the early 1970s, which enormously increased oil revenues for OPEC states, who promptly used the surplus for foreign investments in Latin America (Williams 2008). In addition to opening access to capital accounts to the private sector, Argentina liberalized the domestic financial system, reduced taxes on 1 Indexmundi, “Argentina: Inflation Rate.” http://www.indexmundi.com/g/g.aspx?v=71&c=ar&l=en 2 Indexmundi, “Argentina: Unemployment Rate.” http://www.indexmundi.com/g/g.aspx?v=74&c=ar&l=en 3 Indexmundi, “Argentina: GDP-Real Growth Rate.” http://www.indexmundi.com/g/g.aspx?v=66&c=ar&l=en 4 Trading Economics. “Argentina Government Debt to GDP.” http://www.tradingeconomics.com/argentina/government- debt-to-gdp