The problem of debt crisis and the concept of its solutions in Mexico - Dissertation Example

The debt crisis is one of the major concerns of any less developed country or any developing country. Starting from the year 1980, every developing country has gone through the phases of debt crisis. Generally, when there economy was performing well lots of private banks and foreign investors invest money. But, as these countries’ economies were based on mainly one or two sectors, any kind of downfall in the demand of the finished products of those sectors ensures the downfall of their economy.

As their economical growth was slowing down continuously, they were facing a monetary crisis. Moreover, as the interest rates started to grow, they have to repay more to the borrowing country/institutions. In the case of Mexico, the same thing was happening. Demand for their manufacturing goods started to slow down with the developing economical crisis in the world. As a result their income from export was affected and hence they were not in opposition to repay their loans. That triggers the debt crisis.

To overcome this situation they have to ask for the intervention of the IMF. The intervention of IMF brings about monetary as well as trade names reformation in the country. As the time goes by, Mexico was able to get rid of the crisis. . INTRODUCTION In finance debt is referred as the purchasing power of tomorrow, in view of today without earning the same. A debt crisis can be defined as a situation when a country or an institution or an individual is overwhelmed by a huge financial borrowing, which in their present financial condition they are unable to overcome.

It can be in terms of real goods or money. In any country it is a situation where the concerned country is not in a position to repay the borrowing they have taken from outside the country (from the World Bank or any private banks) and it is surpassing the earnings of the nation. Generally any country can ask for borrowings by means of long term loans (Commercial Bank), short term loans (Commercial Bank), loans from security market by means of bond and debentures and official grants and loans (low interest rate and high repayment term).

In Latin America, the debt crisis of 1980s was due to their official grants and their Long their long term loans from commercial banks (Oliveri, 1992). The debt crisis is an issue of major concern for any less developed or developing country. Generally these less developed countries have to borrow money from different leading countries or the private banks or World Bank for their growth and economic sustenance. While giving them these advances the lenders take into consideration the current economic condition of the country, future growth prospects, political stability, inflation etc.

But in the due course of time due to several reasons which may be political or may be economical that particular nation may face a situation where they are not in a position to repay the loan within stipulated frame of time. Then that particular country is supposed to be in a debt