The Latin America Debt Crisis

Topics: Macroeconomics, Debt, Economic growth Pages: 3 (1009 words) Published: April 21, 2012
The Latin America debt crisis
What Happened
Both internal and external for Latin Americas roller coaster economic performance in what was known as the crisis. During the 50’s and 60’s there was favorable conditions in place to maintain steady employment creation, capital investment and overall economic expansion. But this period ended in 1973 amid the first world oil crisis rocked the world economy and caused an era of debt-led growth among the oil importing Latin America countries. Latin American countries were hit by a slow down in economic growth. The import bill in these nations sky-rocketed and exports saw a massive slump as demand for Latin American products fell abruptly as the world economy slowed down. When a second oil price shock incurred Latin America was already on their knees and many countries were engaged in deep recession. Borrowing provided a temporary escape from spiraling inflation and declining export revenues. Overflowing with petro dollars the banks were quite willing to meet the increased demand for fresh loans. Over the next five years Latin America struggled to recover and only managed steady growth because of increased borrowing incurring heavy debts. This marked a new phase in Latin America’s economic history – Debt led growth – and illustrates how joining circumstances modify the structural linkages of import-export imbalances to borrowing-lending imbalances. After a second oil crisis in 1979 the deep recession in many Latin American countries reached a depression. The sources of the problems were multiple; higher oil prices, low world market prices for the regions cheap exports, the drying up of foreign capital as international lenders refused Latin American loans and rising real interest rates which were placing an enormous strain on the regions ability to repay its debt. The IMF required structural adjustment programs in these countries. Debtor countries had to agree to impose very strict economic programs on their countries...
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