LATIN AMERICAN

COUNTRIES CRISIS
PRESENTED BY

ABHISHEK KUMAR
ANAND REDDY
ANKIT
KUSHAL
ABHISHEK AGARWAL
VIVEK SINGH
RAVI PRAKASH
Latin American countries
THE L.A. COUNTRIES, CONSISTING OF ………

 ARGENTINA
 BRAZIL
 COSTA RICA,
 CUBA
 URUGUAY
 COLOMBIA
 MEXICO
 PERU
 VENEZUELA, etc……….
 Latin American debt crisis

The Latin American debt crisis was a financial

crisis that occurred in the early 1980s (and for
some countries starting in the 1970s), often known
as the "lost decade", when Latin American
countries reached a point where their foreign debt
exceeded their earning power and they were not
able to repay it.
Latin American Debt Crisis: Origin

In the 1960s and 1970s many Latin American

countries, notably Brazil, Argentina, and Mexico,
borrowed huge sums of money from international
creditors for industrialization, especially
infrastructure programs. These countries had
soaring economies at the time so the creditors
were happy to continue to provide loans.
Between 1975 and 1982, Latin American debt to
commercial banks increased at a cumulative
annual rate of 20.4 percent. This heightened
borrowing led Latin America to quadruple its
external debt from $75 billion in 1975 to more than
$315 billion in 1983.Debt service (interest
payments and the repayment of principal) grew
even faster, reaching $66 billion in 1982, up from
$12 billion in 1975.
 Beginning of the debt crisis
 World economy went into recession in the 1970s
and 80s.

 Developing countries also found themselves in

a desperate liquidity crunch.

 Petroleum exporting countries – flush with cash

after the oil price increases of 1973-74.
 Debt payments increased

 Deterioration in the exchange rate with the US

Dollar

 The contraction of world trade in 1981.

Causes of Latin American Debt Crisis 1980s
 Countries such as Brazil, Argentina and Mexico
borrowed heavily during the 1970s to fund
industrialisation.

 By 1983 the region had borrowed from other

countries upto 50% of its GDP or $315 billion.

 The problems occurred in the mid 70s when oil

prices shot up over 300%, most Latin American
economies were net importers of oil so faced higher
import costs. Also, the world economy slowed down.
Contd……….
 Growth in these Latin American countries slowed
down and they struggled to repay debt.

 These policies also led to depreciation in their currencies.

This made it even harder to pay back the debts.

 Also in the early 1980s interest rates increased in the West.

The combination of these factors meant that their National
income was insufficient to meet interest repayments.

 The crisis contributed to the collapse of authoritarian

regimes e.g. in Argentina
 Effects of debt crisis

 Incomes dropped
 economic growth stagnated because of the need
to reduce importations
 unemployment rose to high levels
 inflation reduced the buying power of the middle
classes.
 In response to the crisis most nations abandoned
their import substitution industrialization (ISI)
models of economy and adopted an export-
oriented industrialization strategy.
 A massive process of capital outflow,
particularly to the United States, served to
depreciate the exchange rates, thereby raising
the real interest rate.

 The debt crisis is one of the elements which

contributed to the collapse of some
authoritarian dictatorships in the region, such
as Brazil's military regime and the Argentine
bureaucratic-authoritarian regime.
Total Latin American Debt Outstanding, 1970.1989
Response to Debt Crisis

The IMF lent money, but on conditions. These

conditions involved:

 privatisation
 Removal of tariff barriers – switching from
import substitution to export oriented  trade
policies
Current levels of external debt
Since the 1980 several countries in the region have
experienced a surge in economic development and
have initiated debt management programs in
addition to debt relief and debt rescheduling
programs agreed to by their international creditors.
However, the debt crisis continues to have enduring
effects, including the USD 2.94 trillion of Latin
American and Caribbean debt traded globally in
2004, accounting for 63.2 % of total emerging
markets debt traded worldwide that year.
list of external debt for Latin America based on a March 2006 report

Rank Country External Debt

(million US$)
22 Brazil 211,400
24 Mexico 174,300
29 Argentina 119,000
39 Chile 44,800
43 Venezuela 39,790
45 Colombia 37,060
50 Peru 30,180
65 Ecuador 17,010
73 Cuba 13,100
79 Uruguay 9,931
81 Panama 9,859
85 El Salvador 8,273
88 Dominican Republic 7,907
95 Bolivia 6,430
 Country External Debt
Rank (million US$)

98 Guatemala 5,503

103 Honduras 4,675

108 Nicaragua 4,054

110 Costa Rica 3,633

112 Paraguay 3,535

 MEASURES ADOPTED
 Maintain the financial stability of the countries and
the enterprises by obtaining international lines of
credit, lowering interest rates, granting soft loans to
entrepreneur, canceling debts, among others.

 Generate employment stimulating the construction

sector, improving the execution of investment
projects, and promoting changes in the labor
legislation.

 Promote exports lounging programs to support the

small and medium size companies.
 Improve the competitiveness of the country,
simplifying and suppressing proceedings.

 Except for Argentina, measures to restrict

imports or to impose barriers to commerce
are not observed.

 Only Uruguay seems not to have taken

structural measures to confront the crisis
THANK YOU