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International Debt Crisis

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International Debt Crisis. August 1982. A Bolt From the Blue? ... A Bolt From the Blue? The Road the Debt ... Reagan/Thatcher/Kohl in power. What Went Wrong? ... – PowerPoint PPT presentation

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Title: International Debt Crisis


1
International Debt Crisis
  • August 1982. A Bolt From the Blue?
  • Solutions to the debt crisis and their
    consequences

2
August 1982
  • A Bolt From the Blue?

3
(No Transcript)
4
The Road the Debt Crisis
  • Underdevelopment the key issue
  • 1947 - Rio Conference
  • 1961 Alliance of Progress - 10.7b from
  • 1961 to 1969

5
The Road the Debt Crisis
  • 1950s to 1970s Latin American economies doing
    very well.
  • Economies based on help from Alliance of Progress
    and Import Substitution Industrialisation (ISI)

6
Import Substitution Industrialisation
  • Government orientated growth by replacing imports
    with domestic production
  • Target area where net importers
  • Produce these goods eventually internal
    production will mean that no longer need imports
  • Need to have protection tariffs
  • Inefficient and will eventually run its course

7
The Road the Debt Crisis
  • 1970s ISI model run its course need money to
    keep model functioning

8
The Road the Debt Crisis
  • Africa
  • Most gain independence in the 1960s
  • Independence important but a dawn of a new era?
    Perhaps politically but still underdevelopment
    mono-economies
  • Need money to develop

9
1970s Favourable Borrowing Conditions
  • 1973 Yom Kippur War
  • West awash with oil dollars and want to recycle
    them lend them
  • Interest rates low below inflation

10
1970s Favourable Borrowing Conditions
  • Borrowed on floating interest rates
  • Dollar weak
  • Conglomeration of banks

11
How was the money spent?
  • Infrastructure Mexico City underground
  • Social spending 1982 minimum wage in Mexico

12
How was the money spent?
  • Military military regimes in Latin America
    civil wars in Africa
  • Capital flight
  • Tax evasion

13
What Went Wrong?
  • World events turn against the Third World
  • Reagan/Thatcher/Kohl in power

14
What Went Wrong?
  • Recession in world economy late 1970s/1980s
    demand for goods fell
  • Dollar becomes more powerful Ghana and world
    price of coca

15
What Went Wrong?
  • Iranian Revolution world oil price increases
  • New areas of oil production in the West

16
What Went Wrong?
  • The result is that countries now have to pay back
    more on their original loans. Where do they get
    this money?
  • Borrow more money on short term loans to pay
    interest on original loans vicious cycle

17
August 1982 - Mexico
  • Mexico defaults on debt - can not pay debt or
    interest on it
  • Start of the debt crisis
  • Never happened before but Brazil follows suit in
    January 1983 2 of big 3 economies

18
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19
Conclusions
  • Underdevelopment
  • 1970s good time to borrow money
  • End 1970s/1980s world events turn against Third
    World

20
Conclusions
  • Solution is to borrow even more money
  • Vicious cycle that can not be sustained August
    1982 panic in debtor countries but also in the
    West
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