LATIN AMERICAN DEBT CRISIS

There is one question with two sub-questions, and another book reading question. In the first question, the first sub-question is limited in one page, the second sub-question is limited in two pages. And the second question is limited to two pages. The book for the second question is at the following website. https://books.google.com/books?hl=en&lr=&id=sCxYC-Y0ErIC&oi=fnd&pg=PR19&dq=In+Remittances+and+Development:+Lessons+from+Latin+America.&ots=GTor18vYuT&sig=XD1oLKVfFUVD05kvSOjhrp8n-PI#v=onepage&q&f=false

Question 1a

One of the worst inflation crises that hit the developing world was the debt crisis of the 1980s (Ocampo, 2012). The crisis was caused by the inability of the developing countries to pay their debts causing them to ask for help. In Latin America, all the 18 countries were affected, including Colombia, which did not experience the debt crisis but had the problem of balancing its payments as well as a moderate banking crisis. The crisis commenced following the announcement by Mexico of its inability to pay its debts in 1982, a problem that quickly spread to other developing countries of the world…

One of the causes of the debt crisis in Latin America and the Caribbean in the 1980s was the increase in government spending. The 1980s was characterized by the construction of various infrastructure such as roads, railways and utility lines that were important for economic development of the region. This led to increased expenditures by the governments of the region. The increased expenditures, especially by the central governments resulted in increased taxes, thus generating high central government deficits. The debt crisis was also associated with external shocks, unsustainable policies and misuse of funds…

Question 1b (i)

The impossible trinity trilemma is a principle in international economics that suggests that it is impossible for a country to have fixed foreign exchange rates, an independent monetary policy and a free capital movement at the same time. In most cases government that try to have the three elements at the same time often result in failure. Therefore a country must chose to pursue only two of the element of the impossible trinity…

1b (iii)

Various Latin American countries used different strategies to combat the debt crisis in the 1980s. Bolivia implemented a stabilization program that was established on the grounds of a firm commitment to balance to budget on a cash basis as well as a tight money policy. Brazil engaged in various stabilization policies such as the real plan, the Bresser and Cruzado plans that caused the country to lag behind in dealing with the crisis. Argentina had a different strategy from the rest of the countries. It recognized the failure of the public sector, making privatization the most popular way of dealing with the inflation of the 1980s…

            Question 2

Latin America is one of the regions of the world that receives high amounts of remittances (Fajnzylber, Lopez &World Bank, 2008). The region is the main destination of remittances, which are linked to the foreign direct investment of the region and are larger than the official development assistance. The importance of remittances in Latin America is noted when it is expressed as a ratio of the GDP in several countries…

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