Latin American Countries Crisis (Abhi)
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Transcript of Latin American Countries Crisis (Abhi)
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LATIN AMERICAN COUNTRIES
CRISIS
PRESENTED BY
ABHISHEK KUMARANAND REDDY
ANKITKUSHAL
ABHISHEK AGARWAL
VIVEK SINGH
RAVI PRAKASH
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Latin American countries
THE L.A. COUNTRIES, CONSISTING OF
ARGENTINA BRAZIL COSTA RICA, CUBA URUGUAY COLOMBIA MEXICO PERU VENEZUELA, etc.
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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 LatinAmerican
countries reached a point where theirforeign debt
exceeded their earning powerand they were not
able to repay it.
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Latin American Debt Crisis: Origin
In the 1960s and 1970s many LatinAmerican
countries, notably Brazil, Argentina, and Mexico,
borrowed huge sums ofmoney from international
creditors forindustrialization, especially
infrastructure programs. These countries had
soaring economies at the time so the creditors
were happy to continue to provide loans.
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Between 1975 and 1982, LatinAmerican debt to
commercial banks increased at a cumulative
annual rate of20.4 percent. This heightened
borrowing led LatinAmerica 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.
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Beginning of the debt crisis
World economywent into recessionin the 1970sand 80s.
Developing countriesalso found themselvesina desperate liquidity crunch.
Petroleum exporting countries flush with cashafter the oilprice increases of1973-74.
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Debt paymentsincreased
Deteriorationin the exchange rate with the US
Dollar
The contraction ofworld trade in1981.
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Causes of Latin American Debt Crisis 1980s
Countries such as Brazil, Argentina and Mexicoborrowed 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 LatinAmerican
economies were net importers ofoil so faced higher
import costs. Also, the world economy slowed down.
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Contd.
Growth in these Latin American countriessloweddownand theystruggled to repay debt.
These policiesalso led to depreciationin their
currencies. This made it even harder to pay back thedebts.
Also in the early1980sinterest ratesincreased in theWest. The combination of these factors meant that theirNationalincome wasinsufficient to meet interestrepayments.
The crisis contributed to the collapse ofauthoritarian
regimes e.g. in Argentina
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A massive process ofcapital outflow,
particularly to the United States, served todepreciate the exchange rates, thereby raisingthe realinterest rate.
The debt crisisis one of the elementswhichcontributed to the collapse ofsomeauthoritarian dictatorshipsin the region, such
as Brazil's military regime and the Argentinebureaucratic-authoritarian regime.
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Total Latin American Debt Outstanding, 1970.1989
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Response to Debt Crisis
The IMF lent money, but on conditions. These
conditionsinvolved:
privatisation
Removal of tariffbarriers switchingfromimport substitution to export oriented tr adepolicies
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Current levels of external debt
Since the 1980several countriesin the region have
experienced asurge in economic development and
have initiated debt management programsin
addition to debt reliefand debt rescheduling
programsagreed to by theirinternational creditors.
However, the debt crisis continues to have enduring
effects, including the USD 2.94 trillion ofLatinAmericanand Caribbean debt traded globallyin
2004, accountingfor63.2% of total emerging
markets debt traded worldwide that year.
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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 13,10079 Uruguay 9,931
81 Panama 9,859
85 El Salvador 8,273
88 Dominican Republic 7,907
95 Bolivia 6,430
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MEASURES ADOPTED
Maintain the financialstability of the countriesandthe enterprises by obtaininginternationallines ofcredit, loweringinterest rates, grantingsoft loans toentrepreneur, canceling debts, among others.
Generate employment stimulating the constructionsector, improving the execution ofinvestment
projects, and promoting changesin the laborlegislation.
Promote exportsloungingprograms to support the
smalland medium size companies.
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Improve the competitiveness of the country,
simplifyingand suppressingproceedings.
Except for Argentina, measures to restrict
imports or to impose barriers to commerceare not observed.
Only Uruguayseemsnot to have takenstructural measures to confront the crisis
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THANK YOU