Latin American Countries Crisis (Abhi)

download Latin American Countries Crisis (Abhi)

of 19

Transcript of Latin American Countries Crisis (Abhi)

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    1/19

    LATIN AMERICAN COUNTRIES

    CRISIS

    PRESENTED BY

    ABHISHEK KUMARANAND REDDY

    ANKITKUSHAL

    ABHISHEK AGARWAL

    VIVEK SINGH

    RAVI PRAKASH

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    2/19

    Latin American countries

    THE L.A. COUNTRIES, CONSISTING OF

    ARGENTINA BRAZIL COSTA RICA, CUBA URUGUAY COLOMBIA MEXICO PERU VENEZUELA, etc.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    3/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    4/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    5/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    6/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    7/19

    Debt paymentsincreased

    Deteriorationin the exchange rate with the US

    Dollar

    The contraction ofworld trade in1981.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    8/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    9/19

    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

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    10/19

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    11/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    12/19

    Total Latin American Debt Outstanding, 1970.1989

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    13/19

    Response to Debt Crisis

    The IMF lent money, but on conditions. These

    conditionsinvolved:

    privatisation

    Removal of tariffbarriers switchingfromimport substitution to export oriented tr adepolicies

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    14/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    15/19

    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

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    16/19

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    17/19

    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.

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    18/19

    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

  • 8/8/2019 Latin American Countries Crisis (Abhi)

    19/19

    THANK YOU