During a tumultuous two weeks in December, Argentina saw four presidents come and go before a fifth, current President Eduardo Duhalde, finally took power on January 1. The upheaval was precipitated by thousands who took to the streets of Buenos Aires to protest — sometimes peacefully, sometimes violently — the sorry state of Argentina's economy and the public policies they believe have caused it. While the protests may have quieted in recent days, the situation in Argentina remains extremely tense and very fluid.

Argentine Economics, A Crash Course

The crisis in Argentina was brought about by a number of longstanding factors. Understanding them requires a basic primer in economics, politics and how the two are often intertwined in that part of the world.

Throughout the past century, Argentina has found itself pulled in opposite directions by competing economic philosophies. These philosophies have at times provided the ideological underpinnings for the country's competing political parties and their leaders.

On one side are the free traders, who believe that the only way for Argentina to succeed in the long run is to throw open its consumer market to the untamed forces of the world's economy. They believe there is a market for Argentine goods (such as beef, wheat and oil) abroad and that being able to sell them overseas will ultimately benefit the country. They also hold that allowing foreign countries to sell their products in Argentina benefits the country's consumers because it allows them to purchase the highest quality goods at whatever price the market dictates.

In the short run, the free traders contend that investment and loans from companies or banks outside Argentina will stimulate the nation's economy and provide much-needed jobs. Free traders often oppose using massive government spending projects such as highway construction or military buildup to create jobs for Argentine citizens. They believe it is the primary role of the free market, not the government, to employ people.

On the other side are the protectionists. They believe that for Argentina to succeed in the long run, it must close the doors to its market at least somewhat to the outside forces of the world economy. How far the doors should be closed and which industries to protect are matters of debate within the protectionist camp.

Protectionists contend that, when left to its own devices, a completely free market leads to exploitation of Argentina's resources and its people. They object to foreigners owning and operating businesses in Argentina and taking the profits they earn out of the country. To combat that, they support protectionist policies that impose tariffs on goods imported into Argentina. Here's how tariffs are designed to work: Imagine an American company called Tommy Tuna wants to sell its tuna fish in Argentina, and the country has a tariff policy that for every can of tuna Tommy sells it must pay the government two pesos (the Argentine currency). To cover the cost of those two extra pesos, Tommy charges Argentine consumers two pesos more at the market. So, when faced with the choice of purchasing either the domestically produced Argentuna brand tuna fish or Tommy tuna, shoppers will more often buy the Argentinean brand, thus supporting the local industry. Those that subscribe to protectionist policies within Argentina also often believe in heavy government spending on projects that create jobs and, they say, help the economy.

Juan Perón, the most important Argentine leader of the 20th century, became president in 1946 and served again during the 1970s. Perón's populist message was tinged with anti-Americanism and anti-imperialism. Heavily influenced by Mussolini's policies in Italy, he promoted government involvement in many sectors of Argentina's economy. Though he died in 1974, Perón remains a dominant figure in Argentine politics to this day. President Carlos Menem, the man who led Argentina through much of the 1990s, was a member of the Perónist Party. But he took a number of key steps to privatize industries the Argentine government had long controlled, such as public utilities and the airlines. He also slashed government programs that aided the poor.

First, though, Menem attempted to create an environment that welcomed foreign investment and foreign loans. As part of that process, he pegged the value of Argentina's currency, the peso, directly to the U.S. dollar at a one-to-one ratio.

Through much of the '90s, Menem's policies appeared to have been successful. Thanks to the peso-to-dollar peg, inflation, which had long been a major problem, remained under control. For a while, the Argentine economy was hailed as one of the great success stories of South America.

But the country's economy soured over the past four years. The tough times were actually exacerbated by the dollar-to-peso peg, which caused Argentine goods to be artificially expensive when compared to those produced in countries that saw the value of their currencies drop, such as Brazil. As Argentines' incomes plummeted due to the recession, so did the amount of tax revenue their government could collect. That caused an already large government deficit to balloon, especially since Argentina's president refused to cut spending to compensate for the lower revenues. It also caused foreign lenders to worry publicly that the loans they made to Argentina might never be repaid.

All of this left Fernando de la Rua, Argentina's president at the start of 2001, between a rock and hard place. On one hand, he had to cut government spending to convince Argentina's lenders that it could eventually pay off its debt and to demonstrate that Argentina was serious about wanting to be part of the global economy. On the other hand, reducing government expenditures would mean slashing government jobs and reducing wages for those who remained on the government rolls. Such a move would surely infuriate Argentina's politically powerful unions.

Ultimately, the competing pressures were more than de la Rua could handle. A few weeks, three presidents, and numerous street protests later, current President Eduardo Duhalde was sworn in on January 1, 2002.

Duhalde is a member of the Perónist party, and during his tenure as a governor of Argentina's largest province, he advocated high government involvement in the economy. During his first days in office, he invoked strong, anti-imperialist populist rhetoric.

But Argentina has $141 billion in outstanding public debt and desperately needs a cash infusion from somewhere to stabilize both its currency and, in turn, its political situation. So, as the weeks have worn on, Duhalde has begun to temper his remarks while quietly seeking financial assistance from the International Monetary Fund, backed by the United States. The IMF, in particular, has long complained about Argentina's budget deficits and is sure to make any new aid contingent on Duhalde cutting government spending. Meanwhile, Argentines are fearful the value of their currency will go into a free fall once it is allowed to fluctuate on the open market. The Argentine government is, in turn, fearful that its citizens will take all of their money out of the banks to exchange it for American dollars, which would cause the nation's financial system to collapse. To prevent this, the government has frozen all savings accounts valued at more than $3000, which has infuriated its citizens.

It's a crisis with no simple solution, and it's unlikely to be resolved anytime soon.

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