Debt Crisis 1980s – Latin America

Definition of Debt Crisis. When a country cannot or will not pay the interest repayments on a debt. In the case of a country these are its external debt commitments.

In the 1980s there was a major international debt crisis because several less developing countries in Latin America and  Africa defaulted on their debt repayments.

Causes of Latin American Debt Crisis 1980s

  • Countries such as Brazil, Argentina and Mexico borrowed 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 Latin American economies were net importers of oil so faced higher import costs. Also, the world economy slowed down.
  • Growth in these latin American countries slowed down and they struggled to repay debt.
  • These policies also led to depreciation in their currencies. This made it even harder to pay back the debts.
  • Also in the early 1980s interest rates increased in the West. The combination of these factors meant that their National income was insufficient to meet interest repayments.
  • The crisis contributed to the collapse of authoritarian regimes e.g. in Argentina

Response to Debt Crisis

The IMF lent money, but on conditions. These conditions involved:

  • privatisation
  • Removal of tariff barriers – switching from import substitution to export oriented  trade policies

 

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