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Debt and Crisis in Latin America

Debt and Crisis in Latin America: The Supply Side of the Story

Copyright Date: 1989
Pages: 338
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  • Book Info
    Debt and Crisis in Latin America
    Book Description:

    Examining the causes of the acute Latin American debt crisis that began in mid-1982, North American analysts have typically focused on deficiencies in the debtor countries' economic policies and on shocks from the world economy. Much less emphasis has been placed on the role of the region's principal creditors--private banks--in the development of the crisis. Robert Devlin rounds out the story of Latin America's debt problem by demonstrating that the banks were an endogenous source of instability in the region's debt cycle, as they overexpanded on the upside and overcontracted on the downside.

    Originally published in 1993.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6053-1
    Subjects: Finance, Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-x)
    (pp. xi-xiv)
    (pp. xv-xviii)
  6. CHAPTER ONE Introduction: The Crisis in Latin America
    (pp. 1-7)

    Since mid-1982 Latin America has been suffering through one of the most serious economic crises in its history. A good summary statistic of the region’s plight is per capita income: at the end of 1987 it was nearly 6 percent lower than the figure registered in 1980.¹ At the outset of the crisis even the most optimistic observers expected the 1980s to be a “lost decade” for Latin America, estimating that by 1990 per capita income would barely exceed its 1980 level.² Now, with six years of crisis behind us, that bleak prognosis indeed appears to have been too bright,...

  7. CHAPTER TWO Growth and Transformation of International Banking: An Overview
    (pp. 8-55)

    Rather than any claim to originality the purpose of this chapter is to present background material on international bank lending that will be supportive of hypotheses and analysis developed in subsequent chapters. My main focus will be on institutional and structural aspects of private banking that I feel are important for understanding the nature of the banks’ interface with Latin America during the expansionary credit cycle of the 1970s and its collapse in the 1980s.

    There is a growing analytical literature on private international capital markets. A number of good works are available on the evolution of international lending prior...

  8. CHAPTER THREE International Banking: Its Structure and Performance during the 1970s
    (pp. 56-122)

    It is evident from the previous chapter that private banks have become important, high profile actors in the world economy. Yet research on the “global bank” has lagged well behind developments in the industry. As these institutions turned to a transnational growth strategy in the 1960s and 1970s most analysts focused their attention on the activities of the nonfinancial transnational corporation (TNC). For instance, the ground-breaking and controversial 1974 study by Barnet and Müller, which alerted public opinion to the possible socioeconomic repercussions of global profit-making corporate strategies, treated banks only parenthetically.¹ In the second half of the 1970s, and...

  9. CHAPTER FOUR The Expansive Phase of an LDC Credit Cycle
    (pp. 123-180)

    In the preceding chapter we saw that, contrary to conventional assumptions, the modern bank can be a very forthcoming lender. Moreover, when the market is forming itself around a new borrower, there is reason to believe that the conventional logic of an upward-sloping supply curve for credit may not be immediately relevant. Indeed, when one examines how banks institutionally translated risk assessment into credit decisions, a flat, or horizontal, curve becomes more plausible over a significant stretch of the credit cycle. And, of course, with a flat curve the traditional notion of discipline in the marketplace can break down.


  10. CHAPTER FIVE The Crash and the Political Economy of Rescheduling
    (pp. 181-235)

    Latin America’s credit boom of the 1970s ended in mid-1982, when practically all the significant clients of the banks (except Colombia)¹ began one by one to enter into de facto default and multiple reschedulings.² But it is important to note that problems in servicing bank debt were not new in Latin America: Peru, Bolivia, Jamaica, Guyana, and Nicaragua all went through one or more restructuring exercises with the banks prior to the great crash (Table 5.1).³

    The emergence of the earlier credit problems that led to the restructurings of the 1970s and the very first years of the 1980s was...

  11. CHAPTER SIX The Outward Transfer of Resources: What Can Be Done About It?
    (pp. 236-282)

    I have tried to establish a convincing argument for coresponsibility in the genesis of the great Latin American debt crisis. The crisis arose out of overborrowing but also out of its necessary counterpart, overlending. At the same time the permissive instincts of bankers and borrowers received important stimulus from macroeconomic policy and banking regulation in the OECD area. Yet we saw in the previous chapter how the private banks skillfully exploited inherent objective advantages and circumstantial factors—such as their governments’ heightened concern for domestic financial stability and disarray in the debtor circles—to produce a historical anomaly in which...

  12. APPENDIX. The Methodology of the Case Studies on Bolivia and Peru
    (pp. 283-286)
    (pp. 287-308)
  14. INDEX
    (pp. 309-320)