Latin American Financial Crisis: Short- and Long-term Perspectives

Abstract

Whether the indebtedness problem of less developed countries is a minor cash flow disequilibrium — of a transitory nature — or a true debt crisis is a controversial subject where opinions diverge widely. On the one hand, there are politicians, economists and creditors’ debt negotiators who favour the hypothesis that the failure of servicing the foreign debt reflects the unwillingness of policy makers to take the necessary corrective measures to restore an efficient economic performance. If the necessary corrective measures were convincingly taken — they argue — credibility will soon be restored, short-term disequilibrium could be really financed, and the debt problem issue would suddenly disappear. On the other hand, there are politicians, economists, and debtors’ negotiators who favour the hypothesis that the heavy lending to LDCs during the 1970s was a big mistake generating the present situation that they unambiguously identify with a serious debt crisis. They also argue that creditors should assume the full responsibility of exposing themselves to the consequences of a widespread debt relief proposal.