Latin American Foreign Debt: Problems and Prospects

Abstract

A realistic appraisal of Latin America’s foreign debt cannot be made without first defining the international framework within which the region got into debt. The main causes of the quick expansion of international private financing during the last quarter of a century are well known, but recent tensions have highlighted some important aspects of the matter. Since the late fifties, the resources and portfolios of banks operating worldwide have increased at an average annual rate close to 30 per cent. The Eurodollar market became the nucleus of the international finance system. The main source of the banks’ funds was the deficit in the US balance of payments. As the dollar is a reserve currency for the rest of the world, the USA had the privilege of financing their imbalance by ‘exporting’ their national currency. The liquid resources accumulated in central banks gradually seeped through towards those private banks increasing their lending capacity. Two other factors influenced the growth of available liquid resources in international banking. First, the expansion of multinational corporations and of their financial surpluses. Second, and since 1973, the formation of a large surplus by oil-exporting countries.