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Latin American Debt Crisis. Team Four AYO Akinkuowo Carla bRackman Jared carollo Jerimi nuckolls. The International Financing Climate. The Bretton Woods system collapses in 1971 Floating Exchange Rate Global financing shift from IMF, World Bank to commercial banks

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latin american debt crisis

Latin American Debt Crisis

Team Four

AYO Akinkuowo

Carla bRackman

Jared carollo

Jerimi nuckolls

the international financing climate
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 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 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