Convertibility's collapse: default and the corralito

Argentina's 1991 currency board, pegging the peso one-to-one to the dollar, ended the hyperinflation of the early 1990s - when prices had been rising around 27% a month - and supported average growth near 6% through most of the decade. But the rigid peg left no room to adjust when Brazil devalued in early 1999 and the dollar strengthened globally, tipping Argentina into a deflationary recession that fiscal policy never offset: an IMF post-mortem later found that deficit targets had been missed and waived nearly every year from 1994 onward. Three IMF loan augmentations totaling $22 billion in 2001 failed to restore confidence, a bank run forced the government to freeze deposits in the corralito on December 1, 2001, and the government announced a default on roughly $50 billion of debt on December 23 - the largest sovereign default to that point, eventually covering more than $82 billion. Convertibility was abandoned in early January 2002, the peso collapsed, and unemployment surged past 23%, a sequence the IMF's own evaluators later attributed as much to its own misjudgment of Argentina's debt sustainability as to Argentine policy failures.