Latin American Debt Crisis Ppt

7/21/2019 Latin American Debt Crisis Ppt

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Latin American

Debt Crisis -1982

Presented by:-

Hina Khanna 22Srijeeta Chowdhury56

Supreet Kaur 57

Pinky Agarwal

Sayan Das 4

A!hay "air

#ohit Solanki1



Introduction• &he de!t 'risis !egan in the (id)*7+s when (any o, the

-rgani.ations o, Petroleu( /0porting Countries 1-P/C a(assed

wealth3 and !anks were eager to lend !illions o, dollars

• &he atin A(eri'an 'risis is o,ten re,erred to as &he ost De'ade

• 8irst 'a(e into $iew in *92 when #e0i'o announ'ed that it was

una!le to pay what it owed when the :S i(posed stringent(onetary poli'ies

• -ther de$eloping 'ountries 1like %ra.il ; Argentina around the

world !orrowed large su(s o, (oney at low3 !ut <oating3 interestrates

• As a result o, the irresponsi!ility o, !oth 'reditor and de!tor

go$ern(ents3 the 'ountries did not use the (oney ,or produ'ti$ein$est(ent= rather3 they spent these new dollars on i((ediate'onsu(ption

• Conse>uently3 these 'ountries had no (oney to repay their loans

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Causes•

Aristo'rats 'ontrolled the go$ern(ent while the poor hadno $oi'e in these loan (atters3 nor did they !ene?t ,ro(the(

• &he sharp rise in 'rude oil pri'es that !egan in *7@a''elerated this e0pansion in lending generatingin<ationary pressures around the industrial world3 thesepri'e (o$e(ents 'aused serious %-P pro!le(s ,orde$eloping nations !y raising the 'ost o, oil and o,i(ported goods

• nterest loans skyro'keted in the early *9+s when the:nited States atte(pted to redu'e in<ation !y en,or'ing

stringent (onetary poli'ies while3 at the sa(e ti(e3 it alsoin'reased its (ilitary spending

• %y *9@ the region had !orrowed ,ro( other 'ountries upto 5+B o, its DP or @*5 !illion

• Around the lo!e3 raw (aterial pri'es ,ell sharply3 (eaning

poor 'ountries had e$en less (oney to repay their de!ts3



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•

Countries had to 'ut spending to de'rease their de!t andsta!ili.e their 'urren'y

•De!t 'risis ste((ed ,ro( a li>uidity s>uee.e

•

De$eloping 'ountries3 parti'ularly in atin A(eri'a3 werealso eager to !orrow relati$ely 'heap (oney ,ro( the!anks



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Efects• As atin A(eri'aFs e'ono(ies stagnated or e0perien'ed negati$egrowth 3 per 'apita in'o(e plu((eted3 po$erty in'reased3 and the

already wide gap !etween the ri'h and the poor widened

• Po$erty was 5+ per'ent in growing= (alnutrition was 4+ per'ent ingrowing=

• Children are in'reasingly re'ruited into the drug trade and prostitution=

• ong)ter( une(ploy(ent and its ad$erse so'ial eGe'ts are in'reasing=• &he weakening o, lo'al 'o((unities and networks o, (utual support

are !eing destroyed=

• &he growth o, 'ri(e and an epide(i' o, ho(i'ides3 are !ut a ,ew o,the (any dile((as that this de!t 'risis has 'aused

• &he per 'apita DP o, the region ,ell ,ro( **2B to 9B

o, the worldFs a$erage and ,ro( @4B to 26B o, that o, thede$eloped 'ountries

• &he #8 lent (oney3 !ut on 'onditions o,)

pri$atisation ; Ie(o$al o, tariG !arriers J swit'hing ,ro(i(port su!stitution to e0port oriented trade poli'ies

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Management o t!e crisisduring t!e 8"#s

• De!tors to e0tend ?nan'e ; part o, the 'ountries to go into de!tL ended in an o$ere0tension o, the international ?nan'ial

syste(

• Coordination o, the 'reditors) delay or stop the de,aults !y atinA(eri'a

• #e0i'o de,aulted in Aug3 *92• I) ,un'tion was to sta!ili.e the ?nan'ial syste(

• -utgrowth o, in,or(al (easure(ents !y go$ern(ent o, thegroup o, 7 1led !y :S3 so(e o, the larger lending !anks3 and

(ultilateral ?nan'ial organi.ations espe'ially #8

• #8 'oordination with 'o((er'ial !anks negotiation) de!tor'ountry

• Adjust e'ono(y

• A$oiding de,ault) desta!ili.ed the international ?nan'ial syste(

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P!ases in t!e Management ot!e crisis $

%trategy o ILL&• :npre'edented 'oordination a(ong 'reditors

• Adjust(ent in the de!tor 'ountry

• Ie'onstru'tion o, de!t ser$i'e

• A'ti$e role o, oM'ial se'tor go$ern(ent and (ultilateral institutions

• %aker Plan

• Annual (eeting #8 and Norld %ank) Oa(es %aker new s'he(e

• Ie'essionary eGe'ts o, *st phase ) stru'tural adjust(ent with growth

• denti'al to *st phase Jres'heduling de!ts due under regular'o((er'ial loan ter(s and with new (oney

• Continuous ; signi?'ant erosion o, @ rounds o, res'heduling

• "ew role to the world !ank J relati$ely passi$e !e,ore

• 4th round o, res'heduling !egan with #e0i'o 1(id *96

• #ore than hal, o, !ank loans to #e0i'o) %ra.il3 Argentina

• Conditions or negotiated 'ost o, 'redit 'ontinued to so,ten

*st Phase August *92 ) Septe(!er *95

2nd Phase Septe(!er *95 ) Septe(!er *97

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• %aker Plan 1%

• 4th round o, res'heduling 'ontinued

• #arket !ased (enu approa'h Jres'heduling o, new loans3 dis'ount to!uy!a'k de!t3 e0it !onds !elow (arket interest rate3 de!t swaps ;'on$ersions

• Creditors agreed regions !ank de!t partially unpaya!le 18

• "ew s'he(es $oluntary !ased on pri$ate (arket prin'iples) without 'ostto ta0payers 1industriali.ed 'ountries ; e0'lude oM'ial Paris Clu! De!t

1/CAC3*+

• %rady Plan J "i'holas %rady 1e0tension o, %aker Plan

• De!t redu'tion operations

• De!tor 'ountries) less resour'es to !uy!a'k their de!ts e$en in dis'ount

• #o!ili.ed loans in e>ual parts) Norld %ank3 #83 o$t o, Oapan• De!t !uy!a'ks or 'on$ersion into !onds

• Changes in the regulatory and ta0 regi(es o, the !ank

• Sign an adjust(ent progra( with #8

• 5th round o, de!t re'onstru'tion

• Paris Clu! 1rigid !e,ore )"egotiated redu'tion up to 5+B o,

P o, de!t re'onstru'tion

@rd Phase Septe(!er *97 ) #ar'h *9

4th Phase #ar'h *9 to the present

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Lessons Learned

• Despite the (any warning signs that the DCsF de!t le$el

was unsustaina!le and that :S !anks were o$ere0posed tothat de!t

• #arket parti'ipants did not see( to re'ogni.e the pro!le(

until it had already erupted

• &he result was a 'risis that re>uired a de'ade o,

negotiations and (ultiple atte(pts at de!t res'heduling toresol$e3 at 'onsidera!le 'ost to the 'iti.ens o, atinA(eri'a and other DC 'ountries

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Lessons Learned• Nhen a de!t 'risis hits3 the de!t needs to !e 'ut

rapidly &he 'ontinually ,ailing syste( to deal with

de!t 'rises J !ailout loans and austerity J is a tool toprote't the lenders3 and shi,t all the !urden ontode!tor go$ern(ents and their people

• De!t 'rises 'o(e ,ro( ,oreign lending and !orrowing

in the Qgood ti(esQ3 whether !y pri$ate 'o(panies3pu!li' se'tor3 or !oth Pre$enting ?nan'ial 'risesre>uires ,ar less lending and de!t !etween 'ountries

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Conc'usion

• 8ro( the de!t strategy the adjust(ent o, the 'urrent a''ounti(!alan'es was rapid and i(pressi$e &he total 'urrenta''ount de?'it o, inde!ted de$eloping 'ountries ,ell ,ro( **@!illion in *9* to @9 !illion in *94

• &he %rady Plan helped to alle$iate the de!t !urden and torestore 'on?den'e in the ?nan'ial sustaina!ility o, (any

e(erging 'ountries en'ouraged 8oreign Dire't n$est(entwhi'h was li(ited in the *9+s

• &he a!o$e re,or(s in'luding $arious others ga$e atin A(eri'a

so(e !reathing spa'e !ut was insuM'ient• ulnera!ility to pri$ate (arkets rose

• Prudent ?s'al poli'ies3 'are,ul de!t (anage(ent ai(ed atlong)ter( sustaina!ility3 transparent (onetary poli'y3institutional and judi'ial re,or(

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