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#152 External Financing in Latin America: Developments, Problems, and Options

By Carlos Massad

From the Introduction

The difficulties experienced by Latin American countries in obtaining many products abroad during World War II contributed to the stimulus already provided by the Great Depression to develop domestic economic production in many areas. By the end of the war, Latin American countries had accumulated foreign exchange reserves which under normal conditions would have facilitated a policy of opening up their economies to world trade. Several years after World War II, direct foreign investment began to flow into Central America, Venezuela, and Ecuador at a rapid rate. These three countries then opened up their economies and followed a development model which emphasized exportation of primary products and importation of a wide variety of manufactured commodities.

By the mid-1960s most Latin American countries evidenced rapid rates of economic growth, so their attractiveness as borrowers was substantially enhanced. At the same time, world private financial markets developed rapidly in the late 1960s and early 1970s. Foreign investment lost its importance in the financing of current account imbalances and reserve increases in Latin America, and foreign borrowing in the form of loans from private sources grew rapidly. Thus total foreign debt increased rapidly, and its composition changed. In early 1983, the total foreign debt of Latin American countries probably exceeded the U.S.$300 billion.

 

This article explores the main reasons for the recent increases in debt levels in the region; the consequences of this development; the conditions which woudl make high and growing debt levels bearable; and; the policy options which open if these conditions are not fulfilled. 

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Latin America Program

The Wilson Center’s prestigious Latin America Program provides non-partisan expertise to a broad community of decision makers in the United States and Latin America on critical policy issues facing the Hemisphere. The Program provides insightful and actionable research for policymakers, private sector leaders, journalists, and public intellectuals in the United States and Latin America. To bridge the gap between scholarship and policy action, it fosters new inquiry, sponsors high-level public and private meetings among multiple stakeholders, and explores policy options to improve outcomes for citizens throughout the Americas. Drawing on the Wilson Center’s strength as the nation’s key non-partisan policy forum, the Program serves as a trusted source of analysis and a vital point of contact between the worlds of scholarship and action.  Read more