Argentina's Banking System in The Nineties: from Financial Deepening to Systemic Crisis

Abstract:     
The first important attempt to liberalize financial marketsin Argentina took place between 1977 and 1981 and was acomplete failure. Throughout the eighties the degree of"financial repression" oscillated but interest rates werebasically market-determined. However, the financial systemoperated under important distortions related to the volatilemacroeconomic environment. The implementation of theConvertibility Plan in March/April 1991 and the drop ininternational interest rates gave a decisive thrust to theliberalization policy undertaken in mid-1989, whose aim wasto restructure the economy along "market-friendly" lines.Considering this background, the paper tries to accomplishtwo goals. One is to analyze the most importantrepercussions of the reform process on the structural andinstitutional features of the Argentine banking system.Based on this analysis, the second goal is to understand whythe Tequila effect prompted such a deep financial crisis inArgentina, unless the less traumatic effects induced in allother major Latin American economies, and to assess the mainrepercussions of this crisis. In order to do so, the paperis organized into four sections. The first section brieflyanalyzes Argentina's main macroeconomic and financialchanges in the early nineties; the second one deals with therecent evolution of its banking system; the third sectiondiscusses the Tequila effect; finally, the last sectionreviews the main conclusions and suggests some policyimplications.

JEL Classification: N26, G10, E42, E44, E58

working papers series