Latin American Debt Crisis And Its Results

1508 WordsMay 7, 20177 Pages
LATIN AMERICAN DEBT CRISIS, THE SOLUTIONS AND ITS RESULTS. As it known the debt crisis of the 1980s is the most traumatic economic event in Latin America’s economic history. During the “lost decade”, the GPA fell from 112% to 98% of the world average, and from 34% to 26% of the developed countries average. Development countries were giving loans to Latin American countries to enable them to straighten their economies. However, they have had difficulty repaying their debt. Latin American borrowing from US commercial banks and other creditors increased dramatically during the 1970s. At the end of 1970, total outstanding debt was only $29 billion. but by the end of 1978, that number increased to $159 billion. By 1982, the debt level…show more content…
Secretary Baker underlined the importance of foreign and equity investment as non-debt-creating. This can have a compounding effect on growth by bringing innovation and technology and help to keep the capital domestic. The plan proposed the private banks and institutions to keep lending to the indebted countries. The banks could provide new loan of $20 billion over a three years period and the World bank and the Inter-American Development Bank could contribute an additional $9 billion. The Baker plan called for an annual increase of around 2.5% in commercial lending but the bankers were uneasy with this request because the plan was reliant on continuing accumulating debt to finance growth. Without strong assurances on the new loans, it would be very difficult to increase international spending. The Baker plan had mixes results. The plan was efficient towards the 15 largest debtors and it neglected the needs of smaller countries. A few of the worst indebted countries had made progress in adjusting their external sector during 1986-1988 and the threat to the international banking system has subsided, for the time being. The plan failed because the new lending proposed was insufficient. Also, the debilitating effects of high interest rates and low commodity prices were not addressed. There was not one significant contribution that it has been shown that

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