Argentina benefits from abundant natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base, that was once one of the wealthiest nations with a large middle class but this segment of the population has suffered by a succession of economic crises. Argentina otherwise maintains a relatively high standard of living.
Argentina's economy started to slowly lose ground after 1945 when it went from a wealthy nation with a strong and prosperous economy to a deep recession in the mid 50s, losing its place in the position of prosperous industrialized nations. The economy further declined during the military dictatorship that lasted from 1976 to 1983.
During this period, the government took out large loans with high interest rates from the IMF and private banking institutions. The country engaged in a disorganized and corrupt rapid liberalization that marked the end of its industrial hegemony in Latin America. During the military dictatorship over 400,000 companies of all sizes went bankrupt. The economic decisions made from 1983 till 2001 failed to revert the situation. Finally, in 2001, after 3 years of recession, the economy broke down and reached its worst point in history.
Although significant progress has occurred since then, the result is that, today, while a significant segment of the population is still financially well-off, they stand in sharp contrast with the millions who have seen their purchasing power drastically reduced. Since 2002, there has been an improvement in the situation of the poorer sectors and a strong rebound of the middle class.
The urban poverty rate dropped to 26.9% by 2007, down from 48 percent observed in 2003, but is still above the level prior to the recession. From the late 1970s the country piled up public debt and was plagued by bouts of high inflation. In 1991, the government pegged the peso to the U.S. dollar and limited the growth in the money supply. It then embarked on a path of trade liberalization, deregulation and privatization. Inflation dropped and gross domestic product grew, but external economic shocks and failures of the system diluted benefits, causing the economy to crumble slowly from 1995 until the collapse in 2001.
By 2002, Argentina had defaulted on its debt, its GDP had shrunk, unemployment was more than 25%, and the peso had depreciated 75% after being devalued and floated. However, careful spending control and heavy taxes on then-soaring exports allowed the state to regain resources and conduct monetary policy.
In 2003, import substitution policies and soaring exports, coupled with lower inflation and expansive economic measures, triggered a surge in the GDP. This was repeated in 2004 and 2005, creating millions of jobs and encouraging internal consumption. Capital flight decreased, and foreign investment slowly returned. An influx of foreign currency from exports created a huge trade surplus. The Central Bank was forced to buy dollars from the market, and continues to do so from time to time to prevent the Argentine peso from appreciating significantly and cutting competitiveness.
The situation by 2006 was further improved. The economy grew 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006, and 8.7% in 2007, though inflation, estimated at around 12 to 15% (official numbers are 9.8% for 2006), has become an issue again, and income distribution is still considerably unequal.