The Existing Structural Problems that Led to the Latin American Debt Crisis

The Latin American Debt Crisis of the 1980s (also known as the Lost Decade) was one of the most traumatic economic events in Latin American history. Before the 1980s, Latin American countries borrowed capital from foreign commercial banks to fuel their development. However, to soften the effects of the 1973 Oil Shock, the US Federal Reserve increased real interest rates. This increase led to a rapid rise of the real value of Latin American debt. In fact, by the 1980s, Latin America’s foreign debt amounted to nearly half of the region’s GDP. The crisis became evident when the Mexican government announced it could no longer service its debts in August 1982. Indeed, when foreign commercial banks halted the inflow of capital and demanded the repayment of existing foreign loans many other Latin American governments – including Brazil, Argentina, and Bolivia – also announced that they could not make payments on their foreign debts.

Continue reading “The Existing Structural Problems that Led to the Latin American Debt Crisis”