What Is The Richest Country In South America – The Latin American debt crisis (Spanish: Crisis de la deuda latinoamericana; Portuguese: Crise da deuda latino-americana) was a financial crisis that began in the early 1980s (and for some countries in the 1970s), commonly known as La Década Perdida. . When Latin American countries reached an external debt that exceeded their income and could not be repaid (the missing decade).
In the 1960s and 1970s, many Latin American countries, particularly Brazil, Argentina and Mexico have received large amounts of money from international creditors for business, especially infrastructure programs.
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At that time, these countries had high economies, so their creditors were happy to give them loans. Initially, developing countries often received loans through public channels such as the World Bank. After 1973, money poured into private banks from oil-rich countries believing that sovereign debt was a safe investment.
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Mexico borrowed in U.S. dollars on debt until oil prices fell, and the Mexican economy collapsed.
Between 1975 and 1982, The annual growth rate of debt owed to Latin American commercial banks increased by 20.4 percent. Due to increased borrowing, Latin America increased its external debt from US$75 billion to more than US$315 billion in 1983, or 50 percent of the region’s gross domestic product (GDP). Global interest rates rose to $66 billion in 1982, up from $12 billion in 1975, so debt service (interest and principal repayments) grew faster.
In the 1970s and 1980s, when the world economy collapsed and oil prices rose, it created a marker for most countries in the region. Developing countries found themselves in a liquidity crisis. After the oil price boom of 1973-1980, oil-exporting countries invested their money in international banks, partially repurposing large sums of capital into collective loans to Latin American governments.
The sharp increase in oil prices has forced many countries to seek more loans to cover the higher prices, and some oil-producing countries have taken on large amounts of debt for economic development in order to maintain high prices and pay off their debts.
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Exchange rate USD/Argtina * January 1970 to May 1983 – peso li 18188 * June 1983 to May 1985 – peso argtina * June 1985 to December 1991 – australes
The USD was at an all-time high in 1985, making it easier to repay foreign debt;
In 1979, as interest rates in the US and Europe rose, so did debt defaults, making it more difficult for borrowing countries to repay their debts.
As the exchange rate against the U.S. dollar fell, Latin American governments lost large amounts of their national currencies and purchasing power.
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The world trade recession of 1981 caused prices of primary resources (Latin America’s largest export) to fall.
The debt crisis began when international capital markets recognized that Latin America was unable to repay loans, despite the accumulation of dangerous foreign debt over several years.
It happened in August 1982 when Mexican Finance Minister Jesús Silva-Herzog announced that Mexico would not be able to pay its debts.
Mexico failed to meet its payment deadline and announced a unilateral 90-day moratorium. He also asked for a renegotiation of payment periods and new loans to meet previous obligations.
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Due to the regular revision of jurisdiction in Mexico, most commercial banks have significantly reduced or stopped new leases to Latin America. Because most Latin American loans are short-term; A crisis arose when their refinance was denied. Billions of dollars in loans that would have previously been repaid must now be repaid.
Banks need to restructure debt to avoid financial panic. It includes new loans with very strict conditions, as well as requirements to accept debtor countries from the International Monetary Fund (IMF).
Several steps were taken to prevent the crisis. The IMF decided to restructure payments and reduce public spending in debtor countries.
Finally, The U.S. and the IMF pushed for debt relief, recognizing that countries may not be able to fully repay much of what they owe.
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However, Some neutral economists, such as Steph Kanitz, do not consider the debt crisis to be due to high debt levels or economic imbalances on the continent. The cause of the crisis is access restrictions, such as U.S. government banking regulations that prohibit banks from holding more than their capital; Inflation has reduced their asset limits, forcing them to cut access, they say. International savings of underdeveloped countries.
The debt crisis of 1982 was the worst in Latin American history. decline in income and imports; stop economic growth; high unemployment rate; Inflation reduces the purchasing power of the middle class.
In fact, real wages in urban areas fell by 20 to 40 percent in the years after 1980.
In addition, investments that could have been used to address social problems and poverty were used to pay off debt.
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For bankers in the United States, the loss can be shocking, with more than the total profits of the banking industry since the nation’s founding in the late 1700s.
In response to the crisis, most countries abandoned their import-intensive industrial (ISI) economic models, usually following the IMF’s neoliberal-inspired strategy, although there were exceptions such as Chile and Costa Rica. accepted. Reform tactics. A large process of capital inflows, particularly to the United States, depresses the exchange rate and raises real interest rates. The region’s GDP growth was only 2.3 percent between 1980 and 1985, but Latin America, The per capita growth rate is almost 9 percent. Between 1982 and 1985, Latin America repaid US$108 billion.
Before the crisis, Latin American countries such as Brazil and Mexico borrowed money to stabilize the economy and reduce poverty levels. But when they failed to repay their foreign debts, the loans stopped, and the resources that had previously been available for innovation and growth in the last few years stopped flowing. This has resulted in many completed projects becoming unusable and infrastructural problems in the affected countries.
During the international recession of the 1970s, many countries tried to stem inflation in their countries by raising interest rates on the money they borrowed, leading to massive debt in Latin America. Between 1970 and 1980, Latin American debt levels rose by more than a thousand percent.
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The crisis got to the rate of income. As the poverty gap widens dramatically, population declines and poverty increases. Due to the decline in the employment rate, children and adults are involved in drug dealing; They were forced into prostitution and violence.
Low recruitment rates have created many problems such as murder and crime, making the affected countries undesirable destinations. Desperately trying to solve these problems, Debtor countries felt pressure to regularly repay their debts, making it difficult to restore damaged economies.— Construction.
Latin American countries can’t pay their debts and turn to the IMF (International Monetary Fund), which provides money for outstanding loans and debts. As a result, the IMF forced reforms in Latin America that favored free market capitalism and exacerbated inequality and poverty.
In an effort to overcome the debt crisis, the IMF forced Latin America to remove austerity programs and programs that reduced overall consumption. Reductions in public spending exacerbated social disruptions in the economy and stifled entrepreneurial efforts.
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Latin America’s growth rate has slowed sharply due to government austerity programs that have curbed further consumption. Living standards also fell along with growth, fueling popular anger at the IMF, Latin America’s symbol of “external” power.
Government leaders and officials were ridiculed for the IMF’s involvement and protection, and some were released. In the late 1980s, Brazilian officials called a debt negotiation meeting “decided not to sign any more agreements with the IMF.”
IMF intervention led to greater financial deepening and devaluation of the world’s developed capital flows and greater exposure to international volatility.
The use of structural adjustment programs increases unemployment and underemployment; Social costs were high, such as falling real wages and incomes and increasing poverty.
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This is a list of external debt for Latin America, based on a 2015 report by The World Factbook. Why is Latin America’s economic growth still so slow? Economists have approached the question with various analyses, but the answer is simple: lower productivity. It is caused by government involvement that stifles competition and innovation.
Latin America is unable to catch up with other developed and emerging countries due to low productivity. © GIS / Source: Levy; 2019; Based on IDB.
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