some 22 percent from 1998, unemployment had risen to around 20 percent, and the banking
system all but collapsed. It is well known that international capital flows into emerging
economies are quite fickle: capital flights were massive. As Argentina defaulted on its external
debt, the IMF scrambled to come to the rescue, and they acted in rather inconsistent ways. Beset
by similar woes, Brazil, Argentina’s main export market, did not hesitate to forsake its dollar
peg and float, seriously hurting Argentina’s exports in the process. The Argentinian government
was reluctant to give up their peg to the dollar; Argentina’s policy makers were hoping for an
automatic adjustment – decrease in the money supply and deflation – to sort out their problem.
However the severity of the economic crisis led to civil unrest and to the unavoidable
devaluation of the peso. This development put a huge cost on the public; the Argentinian
economy was highly dollarized with the bulk of loans and deposits denominated in dollar. To
ease the pain on the debtors