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Latin Economic Crisis: Relationship between Argetina and the International Monetary Fund - Term Paper Example

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This paper examines the severity of Argentina's debt and the relationship between Argentina and the IMF. During the Great Depression, the UK and France too defaulted on the debt repayments but problems in debt repayments in Latin American can be dated back to 1914 when Mexico suspended its payments. …
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Latin Economic Crisis: Relationship between Argetina and the International Monetary Fund
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Download file to see previous pages Even after sixteen years of debt reduction and debt-service reduction schemes, seven countries of Latin America accounted for almost 89% of the region's outstanding foreign debt (Strizzi & Kindra). The higher a country's foreign debt level, the greater are the chances of default. According to the World Bank, the Latin American Countries (LAC) would need the US $ 60 million annually during the 1991-2000 period. This translates into higher borrowing, higher debts, and debt servicing. Budget cuts were immediately felt at the international financial institutions like the Asian Development Bank (ADB), International Monetary Fund (IMF), which decreased access to officially supported credits. Global interest rates rose, which further increased foreign debts. Mexico, Brazil, and Argentina could not sustain the economic growth and lurch from one financial crisis to another (Elstrodt, Lenore, and Urdapilleta). Debt has been the largest source of capital flows in developing countries but despite that, economic development has not been successful. The causes and consequences of such debts have been the subject of debate over the years.

Owing to a series of corrupt regimes, Argentina has experienced severe economic declines. In 1956, a group of wealthy nations met in Paris to find a solution to the looming debt problems of Argentina. In the 1970s, a large amount of lending to Latin America was in the form of syndicated bank loans. Brady Bonds helped in the debt restructuring process and the Brady plan proposed exchanging the loans for bonds that would allow the debt to be traded in financial markets where it would be priced at market value.

Macroeconomic management is essential if the country is to attain sustained growth.  Argentina, besides pegging the peso to the US dollar at parity in 1991, it also lifted price controls (Elstrodt). Industries like mining, oil, telecommunications, transport, and utilities were privatized.  ...Download file to see next pages Read More
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