CHAPTER 7
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.
Argentina
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
Uruguay
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 Uruguay” Washington, DC, February 14, 2005
Dominican Republic
5. U.S.
Economic Cooperation with the Dominican Republic, Santo
Domingo, Dominican, Republic, July 10, 2004