Thursday, November 29, 2001 felt like any other day in Argentina. People woke up, went to work, and lived their lives. There was nothing really unusual about that day, everything seemed fine.
Sure, Argentina’s economy had been in a severe recession for three years, so life was difficult. But it was still normal.
By the end of the day, however, a major bank run had started in the country, and life changed forever.
For years, up to that point, Argentina had pegged its currency at a 1:1 rate to the
US dollar; this meant that anyone holding local currency could freely convert their Argentine pesos to US dollars.
The government’s goal behind this scheme was to reign in inflation and demonstrate that their currency was strong. And it worked for a few years.
But eventually the convertibility became unsustainable. As more and more businesses and individuals converted their pesos into dollars, the government started running out of dollars.
So they went into debt.
Argentina’s government borrowed a mountain of US dollars from foreign investors, solely to maintain this artificial exchange rate. Nearly every dollar they borrowed was almost immediately exchanged for pesos, forcing the government to borrow even more dollars.
By November 2001 the situation reached its crisis moment; large depositors became spooked that the heavily indebted government was about to break the unsustainable exchange rate and devalue the peso. So they started withdrawing their money and converting into dollars.
Panic quickly set in. The next day, Friday November 30th, everyone in the country was rushing to get their money out and convert to dollars.
Then it happened: the next morning, on Saturday December 1st,
the government announced that they were freezing every bank account in the country in order to stop the panic.
Needless to say the bank freeze had the opposite effect.
People went out into the streets to riot like never before. Workers went on strike. Looting and crime rates soared. Grocery store shelves emptied out.
The government quickly deployed federal forces to quell violence and restore order, but the ‘mostly peaceful’ protests continued.
By December 20th the situation was so untenable that
the President resigned from office and was forced to escape the capital by helicopter.
The new President almost immediately defaulted on Argentina’s $132 billion national debt, and then devalued peso.
The whole episode took less than five weeks-- from November 29, when everything still felt ‘normal’, to early January 2002 when they had blood in the streets, looting, empty grocery shelves, frozen bank accounts, debt default, and a currency crisis.