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A Wasted Decade: 1980s Debt Crises

695 words - 3 pages

Before 1982, Latin American countries enjoyed years of cheap foreign loans in the 1970s. After half century of political and economic instability, for just a brief period of time everything seemed to stabilize. Governments financed variety of industries and the economy began to improve. Overall they were doing better compared to their past history. Then abruptly, in 1982 a series of events changed everything. Mexican and Brazilian officials informed the world that it could no longer honor its financial debts. Soon most of the Latin America counties also found themselves not being able to honor its debts. As a whole, Latin American foreign loans rose from one hundred five billion dollars in 1976 to three hundred ninety-seven billion dollars in 1986 (Chasteen 321). Immediate all credits for Latin America was suspended and all a sudden Latin American countries found themselves in the middle of financial crises. The effects of Latin American financial crises were devastating, but do you know the causes of the crises? The causes of the 1980s crises occurred because of the growing world interest rate and sudden increase in oil price.
The dramatic increase in oil price played a triggering role in Latin American financial debt crises. Like most countries, Latin American countries needed oil for their economic survival. The growing industries, many forms of transportation, electricity, drugs, and many other services needed oil to work. So when in 1973, OPEC (organization of the petroleum exporting countries) quadrupled the prices of oil, it became difficult for many developing Latin American Countries to get oil because they could not afford the rise in oil price (“1973-74 Oil Crisis”). Since importing Latin American countries did not have enough capital to finance the deficits associated with the rise in oil price, they turned to the international commercial banks (“Latin America’s debt crisis”). They took out loans to cover their deficit. They were unprepared for the situation and so with tanking out more loans. It does not take a scientist to figure out that the more loans...

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