The Latin American Debt crisis did not occur over night, the crisis was many years in the making and signs of its arrival were prominent in Latin American society. The reasons for its occurrence are also expansive; some fault can also be place in countries outside of Latin America. The growth rate in the real domestic product of many Latin American countries grew at a constantly high rate in the decade prior to the crisis in the 1980s, this growth led to an increase in foreign investment, corporate investment, and the world began supporting these developing nations (Ocampo). The foreign investments into Latin America created a new international financial system that gave the foreign banks access the funds to give massive loans to the developing nations of Latin America. However, the affluence was not continuous. A rise in natural resources occurred in the mid-1970s, which led to increase the prices of imported goods, and thus Latin American countries would have to find a way to pay back these deficits, which then led them to borrowing more money. By the end of the 1970s, Latin America was in debt to for over $150 billion, and the growth rates for each nations debt varied greatly with Mexico and Brazil taking on more than half of the debt themselves.
The loans accrued by the Latin American countries had floating interest rates, which made them closely tied to the commodities of the time. The London Interbank Offering Rate controlled the variable rate, and these prices were updated every six months (Ocampo). The LIBOR calculated the rates based off the average interest rate estimated by leading banks in London and what those particular banks would charge if they were borrowing from other banks. With the LIBOR rates and the floati...
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...on because most of Latin America states depended on import and export tariffs. They needed import and export tariffs to charge high taxes in order to create a healthy economy. But there were no import or exports trades to tax from. These factors weaken the economy, there was no other solution but to borrow money. In most cases borrowing money was fatal because there was no money to pay back. Most liberal governments often defaulted by borrowing money.
When you get to the point where debt becomes too much you begin to search for a way out. There are many different options to get rid of their debt; one option is the debt snowball. This debt relief option sounds more unusual than it really is.
Mexico was running an increasing current account deficit from US$7.5 billion in 1990 to US$23.4 billion in 1993. This indicates an excess of private investing over private savings. However, the country was able to maintain an improving fiscal account from US$3.6 billion deficit in 1990 to US$0.7 billion surplus in 1993. The deficit in current account was financed through capital funds from abroad resulting the capital account to increase from US$8.4 billion in 1990 to US$33.8 billion in 1993.
Many years of war made Latin America’s economy suffer, and made it almost impossible to be able to recover from their debt. A stable economy was crucial to be able to gain credibility, from other countries so that investments would continue. In Peru, for example the silver mines and machinery where destroyed beyond repair. “Horrendous economic devastation had occurred during the wars of independence. Hardest hit were…Peruvians silver mines. Their shafts flooded, there costly machinery wrecked.” 120(Chasteen ). This made Peru suffer greatly because this was one of their main trades. In Mexico, one of their largest economic struggles was the lack of transportation infrastructure, meaning that Mexico did not have railroads. Mexico also lacked navigable rivers which made it much harder to be able to...
Every day in New York City, hundreds of people walk past a huge digital billboard with giant numbers across its face. Each person who walks past this billboard sees a slightly different arrangement of numbers, growing larger every second. This board is the National Debt Clock, representing the over 14 trillion dollars currently owed by the United States. While some people claim that the national debt is caused by the falling economy, most maintain that the debt itself causes the poor economy (Budget Deficits 2007). Rising debt leads to higher interest and investment rates, and cuts into our national savings. Ignoring the national debt leaves the major burden of paying it off to later generations, while meanwhile allowing our country’s economy to further drop and our dependency on other nations to rise.
Venezuela heavily relied on oil exports which put it at economic risk and during 1978 the price of oil fell which put the economy in a tail spin (9 Infoplease). In 1994 with rising debts and falling oil prices half of Venezuela’s banking sector collapsed. Venezuela tried to boost its economy by expanding gold and diamond mining to reduce its dependency on oil (9 Infoplease).
The political power has had enormous affect to the Latin American economy. Most of the countries in the Latin America remained colonies for over a long period of time; therefore, they were controlled by the Europeans power. These colonies never thought of development of the Latin American countries, rather all wealth from the colonies was taken out to the home country. This situation is similar to other colonized continents such as Asia and Africa. Almost every colonized country in the world is still in the process of development. These countries were never benefited economically from the colonizers. Therefore, the historic imperialism is still harming countries in the Latin America as well as they are still underdeveloped. According to Marxist theory “The colonies were used as places to invest surplus capital and sell goods from the colonizing countries and as sources of cheap raw materials and cheap labor.”(P165) Therefore, the investors will always get high benefits from their investment; however, the raw materials will get low prices for it. Hence, still Latin American countries face various problems due to the excessive use of natural resources and due to late from the Europeans
On the Sixth Avenue in Manhattan, there is a national debt clock that shows the amount of United States national debt. The clock was first installed in 1989, and can show up to ten trillion dollars. It ran out of digits in October 2008 when the sum of debt exceeded the amount. A new clock with two extra digits is going to be installed (Izzo 2 ).
The concerns I have when talking about economics is the national debt crisis. There was a time when the United States was able to manage to keep a balanced budget. In fact, the only times a budget deficit existed were in times of war or other catastrophic events. The Government, for instance, generated deficits during the recession of 1837, the Civil War, the depression of the 1890s, and World War I. However, as soon as the war ended the deficit would be eliminated. When a government spends more than the revenue collected from taxation, tariff, and other fee revenues, the country must borrow money to cover the deficit it faces which when accumulated over the years becomes the national debt. In addition, there are two types of national debt, internal and external debt. Today the debate over the national debt crisis continues and many U.S. citizens are concerned about their financial future. Although, both the Democratic and Republican parties have their own opinions on how to fix this issue, a decision must be made to solve this issue before major repercussions.
Latin America no longer had revenues necessary to buy manufactured goods from abroad. American businesses left Latin America during the Great Depression, leaving Latin America with no foreign manufactured goods to buy. Instead Latin America started developing new industries to produce manufactured goods, such as steel and oil. The creation of new industries was due to lack of manufactured goods from abroad. Then Latin America developed a new system of labor. Instead of the Encomienda, the new system of labor was the Haciendo. This relied on slave and immigrant labor to efficiently grow crops as exports, filling the void of foreign exports.
Several factors contributed to the Great Depression. A few being maldistribution of purchasing power, the credit structure of the economy and America's debt structure.The Great Depression can be considered inevitable due to the fact that there was no primary reason for the cause of the Great Depression, but many components played a role.
There is a bright side to this though; with the continued downward spiral of importable goods this forced a change in the production of many Latin American countries. The change was basically the fact that with limited import ability the local peoples of individual countries were able to go to work in order to pick up the slack in available goods. This fostered a health industrial environment and put many people to work and opened new business ventures inside the borders of each country. History shows us that international trade is not always the most guaranteed route to national security or secure finances. Perhaps we could learn a lesson from this ourselves, if a country can maintain the ability to produce its own needs then it can weather severe economic storms more readily.
...cy loan to Mexico in January 1995. However, the economic crisis was the worst in Mexico since the global economic depression of the 1930s, and resulted in negative economic growth in the country in 1995 and 1996. The economic crisis led to a serious decline in the standard of living for most Mexicans, as well as an increase in extreme poverty. The nation's gross domestic product (GDP), the value of all goods and services produced domestically by a country, declined 6.2 percent from 1994 to 1995. Since then the economy has been recovering. In 1998 the GDP was $393.5 billion.
Latin American and Caribbean are one of the richest countries when it comes to natural resources. The natural resources that they have are some of the most useful ones in the world and that consists of gold, oil, iron, sugar and many more. World Bank stated that “Latin America produced around 80 percent of the world's silver in the 16th through 19th centuries, fueling the monetary systems of not only Europe, but China and India as well”. This shows that Latin America had so much natural resources that others depended on them. Since Latin America and the Caribbean has all of this resources, they need to develop their production and raise their GDP. Also there are no investments or any business in these countries to make use of the resources
The backbone of the economic disasters experienced in South America were due to import substitution industrialization (ISI) policies. These policies caused a slew of problems, the most notable being trade deficits, high inflation rates, and reduced foreign and domestic investment. The trade deficits were caused by overvalued exchange rates used to keep imports artificially cheap, the inflation was caused by high state spending and poor taxation, and the reduced investment was caused by the previous two factors. All in all, these crises led to a dependence on foreign capital in the form of investment or