Debt Problems of Latina Americs Article

LATIN AMERICAN PERSONAL DEBT CRISIS

The Latin American debt catastrophe was a financial crisis that originated in the early eighties (and for some countries beginning in the 1970s), often known as the " dropped decade", once Latin American countries reached a point where their international debt surpassed their earning power plus they were not able to repay it.

Roots

In the 1960s and 1970s many Latin American countries, particularly Brazil, Peru, and Mexico, borrowed huge sums of money from foreign creditors pertaining to industrialization; specifically infrastructure applications. These countries had increasing economies during the time so the creditors were thrilled to continue to give loans. At first, developing countries typically garnered loans through public routes like the Globe Bank. After 1973, non-public banks recently had an influx of funds coming from oil-rich countries and assumed that sovereign debt was obviously a safe investment.[1] Between 75 and 1982, Latin American debt to commercial banks increased in a cumulative annual price of 20. 4 percent. This improved borrowing led Latin America to quadruple its exterior debt via $75 billion dollars in 75 to much more than $315 billion dollars in 1983, or 50 % of the region's gross domestic product (GDP). Debt assistance (interest obligations and the repayment of principal) grew even faster, getting $66 billion in 1982, up from $12 billion in 1975.[2] Massive amounts of personal debt issued by dictatorships just worsened the specific situation [3]

Beginning of the debt turmoil

When the world economy entered recession in the 1970s and 80s, and essential oil prices increased, it created a breaking stage for most countries in the region. Growing countries also found themselves within a desperate liquidity crunch. Petroleum exporting countries – eliminate with funds after the oil price improves of 1973-74 – invested their money with international banking companies, which 'recycled' a major portion of the capital while loans to Latin American governments. The sharp embrace oil rates caused many countries to locate more...



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