In October 1999, the UCR–FrePaSo Alianza's presidential candidate, Fernando de la Rúa, defeated Peronist candidate Eduardo Duhalde. Having taken office in December 1999, De la Rúa followed an IMF-sponsored program of government spending cuts, revenue increases, and provincial revenue-sharing reforms to get the federal fiscal deficit under control, and pursued labor market flexibilization and business-promotion measures aimed at stimulating foreign investment, so as to avoid defaulting the public debt.
Towards the end of 2001, Argentina faced grave economic problems. The IMF pressed Argentina to service its external debt, effectively forcing Argentina to devalue the Argentine peso, which had been pegged to the U.S. dollar, or alternatively fully dollarize its economy. Deep budget cuts, including a 13% reduction in pay for the nation's 2 million public sector employees, failed to curb the rapidly increasing country risk on almost U$100 billion in Argentine bonds, increasing debt service costs and further limiting access to international credit, despite a moderately successful debt swap arranged by Cavallo with most bondholders. Voters reacted to the rapidly worsening economy in the October 2001 midterm elections by both depriving the Alliance of its majority in the Lower House, and by casting a record 25% of spoiled ballots.