The Latin American Debt Crisis of the 1980s.

Running Head : The Latin American Debt Crisis of the 1980s In 1982 the Latin American debt "situation " exploded into the Latin American debt "crisis (Heller Peter and Jack Diamond , 1990 ) The twin oil shocks of 1973 and 1979 , dilapidated demand for many Latin American products , rising interest rates , lenders who had too numerous petrodollars to lend but who failed to discriminate amongst borrowers Latin American borrowers whose projects were profligate and sometimes dubious , and a U .S . government eager to permit private loans to serve as a substitute for declining public assistance

were just some of the numerous factors that contributed to today 's international debt crisis .As the focus of international attention has been for obvious causes on the large debtors (Argentina , Brazil , Mexico , and Venezuela , there has been little serious examination of the smaller debtors . On a per capita basis , their debts are fairly as onerous as those of the larger countries , and often more so (Juneau Albert 1988 . Yet as their debts impend smaller in the global scheme of things and do not have the options of undermining the banks or the international financial system as the large debtors do , simply limited attention has been devoted to them

The Latin American foreign debt has the prospective to be disastrous for : the banks that hold the debt the Latin American governments (typically new democracies ) that should repay it the international financial system that is endangered with collapse if the debt is not paid and the U .S . government (and ultimately the U .S . taxpayer , which may have to face the dismal and politically inedible prospect of bailing out all of the previous three

The size of the debt is astounding : about 400 billion , with 40 billion more per year (approximately ) being added in new interest . Brazil owes around 120 billion , Mexico 100 billion , Argentina 60 billion , and Venezuela 40 billion (Kindleberger Charles

. 1986 . Those are the large debtors . Yet on a per capita basis , Costa Rica 's debt burden is the continents heaviest

Before going on further , it is essential to tackle some myths about the debt . First is that the debt will ever be paid back in full with something resembling real money (as discrete from that which is "cranked off " the local treasury printing presses . The debt is so large that it is ludicrous that much more than a trickle of interest (and virtually no principal at all ) will be repaid . All the parties , certainly , know that the debt cannot and will not be paid back , though no one can divulge it publicly , or the whole house of cards that supports the present strategy of managing the debt crisis will be blown away

Second , although everyone knows that the debt cannot be paid back , Latin America cannot be allowed actually to default . That would stigmatize the area as "uncivilized " a label that it has been difficult to live down for hundreds of years it would make the region barred for new loans no new capital...