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Latin American Debt Crisis

Latin American Debt Crisis

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Latin American Debt Crisis

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  1. Latin American Debt Crisis Team Four AYO Akinkuowo Carla bRackman Jared carollo Jerimi nuckolls

  2. The International Financing Climate • The Bretton Woods system collapses in 1971 • Floating Exchange Rate • Global financing shift from IMF, World Bank to commercial banks • Oil Shock of 1973 & 1979 • The rich get richer… • Petrodollar Recycling • Supply-side • Shift in loan packages offered • Insufficient (or little regard) credit risk evaluation • Mentality that countries could not go bankrupt • Demand-side • Non-productive investments • Growing interest payments, depreciating peso, capital flight

  3. The Meltdown • The 1970s – Runaway inflation and multiple failed attempts to stabilize inflation and the exchange rate • August, 1982 – Mexico’s minister of finance declared that Mexico would be unable to meets its August 16th $80 billion debt • Commercial banks refused new loans and demanded payment • October, 1983 - 27 nations had rescheduled their debts, 16 were Latin American nations • Mexico, Brazil, Venezuela and Argentina owed approximately $176 billion (74% of the total LDC debt outstanding) • Banks collapsing, credit crunch, increase in unemployment, decrease in GDP

  4. The Way Out • The International Monetary Fund (IMF) and the Group of 7 (G7) led the response effort which occurred in four phases: • August, 1982: International Lender of Last Resort • September, 1985: Baker Plan – increased voluntary spending to offset recessionary impact of first phase • September, 1987: Bake Plan II - coined “market-based menu approach” was adopted to assist lenders in recovering their money • March, 1989: Brady Plan - launched a fifth round of debt rescheduling and increased resources to reduce debt in Latin America