The Argentine economic crisis and Corralito was a financial breakdown that culminated in the government’s December 2001 freeze on bank accounts. After three years of falling income, rising unemployment, and mounting international debt, the government restricted withdrawals, blocked access to dollar accounts, and then forcibly converted those deposits at an outdated exchange rate. The episode showed how a policy that had helped contain hyperinflation could leave ordinary savers exposed when its underlying economic arrangement became unsustainable.

Background: Stabilization and Its Costs

After 1989, the government of Carlos Menem pursued policies to stop hyperinflation and stabilize the economy. In 1991 it legally fixed the Argentine peso at one U.S. dollar, promising that the exchange rate would not change. To make the commitment credible, the government encouraged people to open bank accounts denominated in U.S. dollars; dollars could be spent in shops in Buenos Aires and withdrawn from cash machines around the city.

The fixed rate helped stabilize the economy for a time, but it also made Argentine exports expensive and foreign imports cheap. Exports dwindled while imports surged, and borrowing became the means of paying for them. That imbalance could not be sustained. As doubts about the peso grew, people shifted more of their wealth into dollar accounts, expecting those savings to remain protected if the government devalued the currency.

The Freeze and Devaluation

By late 2001, Argentina was in the grip of a crisis. On December 1, the government froze all bank accounts, initially for ninety days, and allowed only limited weekly cash withdrawals. The permitted amount was first 250 pesos, then 300 pesos; those withdrawals could be made only from peso accounts. Dollar-account holders could not withdraw their money unless they agreed to convert it into pesos, a condition depositors refused.

Argentines called the restrictions El Corralito, or the Little Corral: account holders were hemmed in, unable to freely access their own deposits. In January, the peso was devalued. Instead of one peso per dollar, the exchange rate soon reached four pesos per dollar. That change appeared to vindicate those who had saved in dollars, but the apparent protection did not last: the government converted dollar accounts into pesos at the old one-to-one rate.

Losses and Significance

The conversion transferred the consequences of the crisis directly to depositors. Someone with $1,000 in a dollar account was left with the equivalent of $250 at the new exchange rate: three-quarters of the savings had effectively been expropriated. The sequence was especially stark because the government had first encouraged dollar accounts as a way of making its exchange-rate commitment believable, then barred access to them and changed the terms on which they were converted.

The episode sits within Argentina’s longer economic decline. The country had been among the world’s richest around the time of the First World War, then fell behind rich countries in Western Europe and North America; relative decline became absolute in the 1970s and 1980s. The book interprets this history through the distinction between inclusive and extractive institutions, noting that earlier growth based on agricultural exports had enriched a narrow elite without fostering innovation. The Corralito offers a later, concrete illustration of how crisis management could impose profound losses on private savers: dollar accounts that had seemed a safeguard became the channel through which the government reduced their holdings.