TEAM FOUR

AYO AKINKUOWOCARLA BRACKMAN

JARED CAROLLOJERIMI NUCKOLLS

Latin American Debt Crisis

The International Financing Climate

The Bretton Woods system collapses in 1971 Floating Exchange Rate Global financing shift from IMF, World Bank to commercial

banks Oil Shock of 1973 & 1979

The rich get richer… Petrodollar Recycling

Supply-side Shift in loan packages offered Insufficient (or little regard) credit risk evaluation Mentality that countries could not go bankrupt

Demand-side Non-productive investments Growing interest payments, depreciating peso, capital flight

The Meltdown

The 1970s – Runaway inflation and multiple failed attempts to stabilize inflation and the exchange rate

August, 1982 – Mexico’s minister of finance declared that Mexico would be unable to meets its August 16th $80 billion debt

Commercial banks refused new loans and demanded payment

October, 1983 - 27 nations had rescheduled their debts, 16 were Latin American nations

Mexico, Brazil, Venezuela and Argentina owed approximately $176 billion (74% of the total LDC debt outstanding)

Banks collapsing, credit crunch, increase in unemployment, decrease in GDP

The Way Out

The International Monetary Fund (IMF) and the Group of 7 (G7) led the response effort which occurred in four phases: August, 1982: International Lender of Last Resort September, 1985: Baker Plan – increased voluntary

spending to offset recessionary impact of first phase September, 1987: Bake Plan II - coined “market-based

menu approach” was adopted to assist lenders in recovering their money

March, 1989: Brady Plan - launched a fifth round of debt rescheduling and increased resources to reduce debt in Latin America