The Latin American Debt Crisis Essay

2038 words - 8 pages

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 floating rate contracts, the credits were very risky because they relied heavily on the creditors (Ocampo). The majority of the loans made to Latin America were by banks in the United States, the concentration of the loans were made by money center banks which dealt mainly with borrowing and lending money with governments, corporations, and other banks rather than civilians. These banks held a lot of the debt that Latin America accrued over the 1970s, and these banks began loaning money to these developing nations because they wanted new profit opportunities and these developing nations were showing promise along with losing businesses to competitors in the US (Ocampo). However, the risks in investing in developing nations were not a secret and many economists and people outside those making the risky investments showed the dangers in these maneuvers.
There were many signs that a crisis was in the horizon for Latin America, and it became more unlikely that these developing nations would be able to continue paying off their debts. The first economic shock caused by natural resources caused some ripple effects, however they were essentially harmless. The second shock caused by these resources, oil in particular, occurred in...

Find Another Essay On The Latin American Debt Crisis

The Greek Debt Crisis: Causes, Impact and Resolution

3131 words - 13 pages trouble with high debt, endemic corruption and tax evasion. However, things took the turn for the worse in 2008 in the aftermath of the global financial crisis when the country faced a full-blown sovereign debt crisis. Causes The Greece economic crisis has been caused in varying parts and with varying significance by a number of factors. The key reasons for the Greek economic crisis can be identified as – Greece’s entry into the Eurozone in

Lula: The End of Latin American Populism?

868 words - 3 pages Whether authoritarian or democratic, rightist or leftist, populism has been the most pervasive political ideology in Latin American politics for nearly a century. Yet populist leaders, while extremely effective at attracting mass support, have also contributed decisively to the region's failure to develop economically and politically. Populism, especially when practiced by undemocratic leaders, has been one of the biggest impediments to the

Latin American Politics: The Poor Indigenous Population

2227 words - 9 pages of society can dictate the fate of millions and the direction of the country. This causes the poorer to be poorer and the richer to become richer. Most Latin American countries have ‘democracies’ but the political elite that does not give credence to the inequality crisis at hand governs them. This detracts from democracy by creating a political system based on wealth and power rather than having the people dictate the institutions

Latin American Turns to The Left

1170 words - 5 pages Latin America Turns to The Left Within the last 20 years many Latin American nations have changed course from a neoliberal polity to one that is sided more to the left wing spectrum. “A significant part of Latin America is governed today by political movements and governments that call themselves ‘leftist’ or are classified as such by external observers.” (Luna) Furthermore, the shift in direction politically has been classified by 3 factors

The American Foreclosure Crisis

2236 words - 9 pages Foreclosure is a dreadful aspect of home-owning. The American foreclosure crisis, and its subsequent economic recession, was caused by lateral misguidance on part of private banks, the federal government, and by the millions of people who purchased their homes on credit. Over 900,000 foreclosures have occurred in California alone, making its foreclosure rate the largest and most formidable; as a result of the housing downturn, private banks like

Solving The American Foreclosure Crisis

1485 words - 6 pages The foreclosure crisis in the United States has reached epidemic proportions. The perfect storm of the sub prime lending issues, coupled with bank failures and layered with a sharp rise in unemployment has lent itself to more and more people losing their most cherished investment, their home. How do we solve this foreclosure problem? Many a great minds have pondered this question over the past year and many home retention programs have been

Latin American Immigration and the U.S. Immagration Policy

2597 words - 10 pages cultural ideology and customs into the United States, yet many people thought that these migrants could not adapt. Today, the American society has become a melting pot of foreign influence; however, many cynics remain skeptical about the incorporation of Latin American people and their influences. Accordingly, these same critics are just as naïve as their previous counterparts, who refused to accept the many gifts and contributions these

The Significance of Heritage and Tradition in Latin American Society

1368 words - 5 pages The Significance of Heritage and Tradition in Latin American Society The Latin American household is one based on traditional values and reverence for ancestral customs. Their heritage is founded upon the beliefs of pride, legacy, and respect for the elders and the wisdom that they imparted. However, as families become engulfed in political and social revolutions, tradition gives way to new and contemporaneous thought

Identify the risks of holding debt securities. Analyze the role(s) of debt securities that led to the current credit crisis.

1427 words - 6 pages According to the Hong Kong Exchanges and Clearing Limited, debt securities include bonds and notes which represent loans to an entity (such as a government, listed company or supranational organisation) in which the entity promises to repay the bondholders or note-holders the total amount borrowed at predetermined maturity date. The repayment in most cases is made on maturity although some loans are repayable in installments. Unlike shareholders

The American crisis by Thomas Paine

1362 words - 5 pages During 1776, the United States was at war to gain its own independence from the hands of the tyrant King George III and his kingdom. As the fightt continued, the spirits of the U.S. soldiers began to die out as the nightmares of winter crawled across the land. Thomas Paine, a journalist, hoped to encourage the soldiers back into the fight through one of his sixteen pamphlets, “The American Crisis (No.1)”. In order to rebuild the hopes of the

The Influence of the Cold War and the Great Depression on United States - Latin American Relations

931 words - 4 pages between the U.S. and Latin America. Through analyzing the implications of the "Good Neighbour" Policy, the sugar crisis, and other events in El Salvador and in Cuba, one can say that the greater global context had a heavy impact on United States and Latin American relations.

Similar Essays

Discussing The Credit Card Debt Crisis

3403 words - 14 pages In Arianna Huffington’s “The Credit Card Debt Crisis: the Next Economic Domino” she elaborates us on the steady rise of credit card holders and the very apparent rise of credit card debit in the U.S. She also talks about the number of credit card defaults and how they were on a rise in 2009 peeking off at 10% the highest for that year. Huffington directs most of her attention towards JPMorgan Chase, the nation's top credit card lender who

The Eurozone Crisis: Greece National Debt

2373 words - 9 pages The Eurozone Crisis - Causes and Solutions The so called “Eurozone Crisis” began in 2009 when it became a publicly known that Greece national debt was over 113 % of their GDP. Consequently, Ireland, Portugal, Spain and Italy joined the club with their debt ratio exceeding 100 %. The investors concerned with the level of the sovereign debt, led to increased yield on the bonds of affected countries, which effectively caused the unsustainably

Foreclosure Crisis The Result Of Unserviceable Debt

1623 words - 6 pages Posing the problem of solving the foreclosure crisis first begs the question – “is there really a foreclosure crisis?” The country is certainly in crisis, but the crisis is not being caused by mortgage foreclosure. Foreclosure is simply a mechanism for people to deal with a debt they can no longer afford. Rather than being a crisis, the potential onslaught of home foreclosures (which has been slowed somewhat by the Obama administration’s

The Imf, World Bank, And Third World Debt Crisis

2469 words - 10 pages about money, economic planning, etc, they would have a much greater chance of staying out of debt and not getting into the same situation again. Cancelling debt will not help in the long run, what will help is fixing the root causes of this crisis. The World Bank and the IMF do not help the third world get out of debt, as they are meant to, but rather keep them in their monumental debt with no ways of paying it back. Third World Debt is an issue