Revisiting Latin America's debt crisis: some lessons for the periphery of the eurozone (original) (raw)
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Revisiting Latin America’s debt crisis
2016
A Domar-Pasinetti model of an emerging-market open economy with output growth endogenous to aggregate demand is presented, with foreign debt, interest and exchange rates playing a relevant role in the dynamics of the debt-to-GDP ratio (d). The model is used to assess the macroeconomic effects of the orthodox policy (fiscal austerity) implemented by policy makers to cope with the foreign debt crisis of Latin America in the 1980s. Such policy involved high costs in terms of welfare, job and output losses to no avail, since the region's financial fragility remained largely unresolved, in the end resulting in the so-called 'lost decade'. The main policy insight of Domar's and Pasinetti's analysis, we argue, posits a pro-growth expansionary policy as the most efficient strategy to abate and bring d to a sustainable path. Finally, we contend that Latin America's experience provides insight for dealing with the ongoing crisis of the periphery of the eurozone.
"The Latin American Debt Crises Redux: What Policy Lessons for the Eurozone"
Progressive Economy Magazine, 2016
After seven years of economic, financial and political crisis, getting the reform of the European Economic and Monetary Union (EMU) right seems quixotic. Dissecting the successes and failures of the resolution of past debt crises might help to think about what to do –and what to avoid- in dealing with this type of crisis. In this sense, the Latin American debt crisis of the 1980s and 1990s bear similarities to the current one in the Eurozone. What lessons do the crises in the Latin American countries (LACs) of the past decades hold for the Eurozone countries today, and especially for its peripheral countries? After laying out a comparative assessment of the similarities and differences of both cases, the present study aims to identify key lesssons in the context of the Eurozone crisis and extract valuable recommendations oriented toward successful policy reform. To this end, the first part of the paper will be devoted to a brief introduction to the debt crises in Latin America. Secondly, I will list in a non-exhaustive fashion the key differences that can be drawn from the Eurozone and LACs cases. Thirdly, I will enumerate the main similarities between the LACs and Eurozone countries. Lastly, a third part with policy recommendations will be provided.
The Impact of the External Debt on the Economic Development of Latin America
2008
This paper considers the external debt cr~s~s of Latin America and its impact on the economic development of the area. The analysis covers four stages. First, it will consider how the debt problem came to be what it is now and the way in which it evolved into its present circumstances. Second, it will address the reasons why the industrial countries should worry about the debt problems of the hemisphere. Third, it is also necessary to examine what Latin America is doing to handle its debt burden and its implication for the performance of its economy. Fourth, some possible solutions to the defusing of the remaining debt bombs, including those which have not exploded yet, will be examined. Finally, we emphasize the need to integrate the debt problem with the whole developmental strategy of the area in such a way as to promote compatibility between the policies designed to handle both issues.
Humanities and Social Sciences Letters, 2018
This study examined the nature, causes and impact of the huge foreign debt crisis in Latin America between the 1970s and 1980s referred to generally as the "lost decade'. As a survey research, it employed the historical method of research and analysis. It gathered its data extensively through library search and adopted the qualitative technique of content analysis of historical documents. The paper noted that the debt crisis in Latin America came to a head in August 1982 when Mexico publicly declared its insolvency. It identified a number of factors that brought about this endemic burden of foreign debt in Latin America. These included: the over-preponderancy of foreign loans granted to Latin American states, particularly Argentina, Brazil, Mexico and Venezuela, in the 1970s and the attendant inflation and increasing floating interest rates. These had combined to serve as great challenges to the economic development and survival of the Latin American countries during the period of study. The various attempts at debt rescheduling and cancellation between 1980 and 1989 were equally well documented. It concluded that Latin American countries should avoid excessive external debts to avoid disaggregation in their economic development in the nearest future. Contribution/Originality: This study contributes to the existing literature on development crisis in Third World countries. The paper"s primary contribution is finding that excessive external debt is a major impediment to socioeconomic growth and development in Latin American states.
Toward an Understanding of Crises Episodes in Latin America: A Post-Keynesian Approach
SSRN Electronic Journal, 2000
Conventional wisdom about the business cycle in Latin America assumes that monetary shocks cause deviations from the optimal path, and that the triggering factor in the cycle is excess credit and liquidity. Further, in this view the origin of the contraction is ultimately related to the excesses during the expansion. For that reason, it follows that avoiding the worst conditions during the bust entails applying restrictive economic policies during the expansion, including restrictive fiscal and monetary policies. In this paper we develop an alternative approach that suggests that fiscal restraint may not have a significant impact in reducing the risks of a crisis, and that excessive fiscal conservatism might actually exacerbate problems. In the case of Central America, the efforts to reduce fiscal imbalances, in conjunction with the persistent current account deficits, implied that financial inflows, with remittances being particularly important in some cases, allowed for an expansion of a private spending boom that proved unsustainable once the Great Recession led to a sharp fall in external funds. In the case of South America, the commodity boom created conditions for growth without hitting the external constraint. Fiscal restraint in the South American context has resulted, in some cases, in lower rates of growth than what otherwise would have been possible as a result of the absence of an external constraint. Yet the lower reliance on external funds made South American countries less vulnerable to the external shock waves of the Great Recession than Central American economies.
Latin America and the international crisis : some considerations on macroeconomic policy
2010
The onset of the recent international crisis marked the end of a period of six consecutive years of economic growth in Latin America, from 2003 to 2008. Due to its uniqueness, this growth period is unprecedented in the economic history of the region. Thus, this article aims to analyze the main characteristics of such expansion period in Latin America, and to study the main transmission channels of the international crisis to Latin American countries. Finally, it discusses some challenges of the macroeconomic policy in the region over the long term.
The Debt Crisis in Latin America: An Example of Unsustainable Development
Canadian Woman Studies, 1993
Dam cet article, l'auteure dkmontre le terribleimpact que la dette internationale a eu sur l'tconomie et les structures sociales de I'Amtrique latine. Elle explique comment des agences internationales comme le FMI et la Banque mondiale ont &clench& une telle crise.