Team Four

1
Latin American Debt Crisis

• Team Four
• AYO Akinkuowo
• Carla bRackman
• Jared carollo
• Jerimi nuckolls

2
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

3
The Meltdown

• The 1970s Runaway inflation and multiple failed
  attempts to stabilize inflation and the exchange
  rate
• August, 1982 Mexicos 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

4
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