TEAM FOUR AYO AKINKUOWO CARLA BRACKMAN JARED CAROLLO JERIMI NUCKOLLS Latin American Debt Crisis

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 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 16 th $80 billion debt  Commercial banks refused new loans and demanded payment  October, 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 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