Dealing with Financial Crises: 2001-2002


My first day on the job in the Treasury (March 5, 2001) made it clear to me that we were going to have a few financial crises to deal with in the first couple of years of the Bush Administration—indeed they were already underway: The Managing Director and the first Deputy Managing Director of the IMF visited the Treasury that day to give us their views of the ongoing crisis in Argentina and the potential for contagion to other parts of the world.  It was not a reassuring story. To prepare for this and other meetings later in the week my very able Senior Adviser handed me folders marked “Argentina”  filled with staff memos and other papers on the situation.  I also got a folder marked “Turkey” which was also in crisis at that time, a situation that would eventually interact with a whole host of other issues relating to national security.


The first two items in this section—many written for public consumption in real time—give the story in brief of what happened during the ensuing months of 2001.  Much more remains to be told, but these testimonies in the Senate and the House remain accurate early assessment of the crisis in Argentina. The third item gives a brief review of the deep Argentina slump in 2001-02, and the remarkable rebound in 2003, and the remaining problems, based on observations I made during a visit Buenos Aires in April 2004.


One of the important characteristics of the Argentina crisis was that—unlike many of the crises in the 1990s—there was virtually no contagion. I believe that the approach taken to this crisis was one of the factors preventing contagion, but that is a subject for scholarly work (indeed it has already begun).  One aspect of the containment was the concentrated effort by the United States to prevent the Argentina crisis from causing havoc in its very close neighbor Uruguay.  The speech (Item 4) I gave at the Uruguayan Embassy in February 2004 (where I accepted a medal for my work on the crisis) summarizes the crisis and our response. Although I have no record of similar speeches or testimony on Brazil’s economic difficulties in 2001 and 2002, it was good news that the crisis did not spread to Brazil.


One crisis that began afresh during the Bush Administration was the banking crisis in the Dominican Republic in 2003. This was set off by the discovery of a remarkable scam in which deposits were simply created at the DR banks. I traveled to Santo Domingo twice to find ways to help the Dominicans resolve their crisis, and the international institutions played an important role.  In the end, however, it was a home grown crisis and was resolved both by an election and by differing parties coming together. The last item is simply a brief press statement I gave during the transition to a new government when I went back to Santo Domingo.


The most important thing about emerging market financial crises right now is that there aren’t any. And fortunately, with the exception of the Dominican Republic, there have been no financial crises since 2002 and those in 2002 were really carryover from an earlier era. Much has changed since the crisis years of the 1990s, including the improvement in monetary and fiscal policies and the reforms I mentioned in the sections “Toward Reform of the International Financial System: Collective Action Clauses” and “Proposing and Implementing a Reform Agenda at the International Financial Institutions.” However, despite the favorable current situation, now is no time to be complacent.



1. Argentina Economic Update, Subcommittee on International Monetary Policy, and Trade of the House Financial Services Committee, February 6, 2002

2. Argentina's Economic Situation, Subcommittee on International Trade and Finance of the Senate Banking Committee, February 28, 2002

3. U.S. Relations with Argentina, Buenos Aires, Argentina, April 22, 2004



4. The U.S. Commitment to Uruguay and Latin America, Remarks at Embassy of Uruguay on Receipt of the “Medal of the Oriental Republic of UruguayWashington, DC, February 14, 2005


Dominican Republic

5. U.S. Economic Cooperation with the Dominican Republic, Santo Domingo, Dominican, Republic, July 10, 2004