Argentina International Debt

Latin American Backround

The Latin American debt crisis started in the early 1980s when countries reached the point where their loans exceeded their income and they were not able to repay their external debt.

In the 1960s and 1970s many Latin American countries, notably Argentina, borrowed huge sums of money from international creditors for their industrialization economic models. These countries had booming economies at the time so the creditors were happy to lend them money. Therefore between 1975 and 1982, Latin American debt increased at an annual rate of 20.4%. This type of borrowing led Latin America to owe as much as 50% of their GDP. Interest rates grew even faster.

In the 1970s and 80s the world economy went into recession, and oil prices skyrocketed. Developing countries were in a financial emergency. Oil exporting countries had a huge increase in cash inflows and they invested their money with international banks, which use most of their gains from their investments as loans to Latin American governments. The debt crisis began when the international capital markets realized that Latin America would not be able to pay back their loans. The lenders refused refinancing their debt and the debts were now expected to be paid immediately.

In response to the crisis Argentina abandon its Import Substitution Industrialization (ISI) and adopted an export-oriented industrialization strategy, encouraged by the IMF. A massive process of capital outflow, particularly to the United States, served to depreciate the exchange rates, thereby raising the real interest rate. Real GDP growth rate for the region was only 2.3 percent between 1980 and 1985, but in per capita terms Latin America experienced negative growth of almost 9%.

The debt crisis contributed to the collapse of the last dictatorship in Argentina.

Dictatorship||Alfonsín||Graphs