StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Latin American Financial Markets - Essay Example

Cite this document
Summary
The beginning of the foreign debt crisis for many developing countries started early in the 1980s when the price of oil and other prime materials dropped sharply. This resulted in a reduction in export-related income for the producer countries at a time when they had to cover the servicing of growing foreign debt…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95% of users find it useful
Latin American Financial Markets
Read Text Preview

Extract of sample "Latin American Financial Markets"

Download file to see previous pages

This situation reached a crisis in August 1982 when the government of Mexico announced a moratorium on the payment of capital totaling approximately $20 billion dollars scheduled for 1982 and 1983. This resulted in a complete suspension of new loans to indebted nations, placing a heavy burden on those countries in Latin America where almost 50 percent of worldwide debt was concentrated. The closure of international financing sources obliged the debtor nations, including Venezuela, to adopt adjustment policies that had a severe recessionary impact.

Against this background, the Venezuelan government and the central bank agreed, in February 1983, on the establishment of a foreign exchange control system based on differential exchange rates. This allowed the granting of foreign exchange for basic imports and debt servicing at a preferential exchange rate, while the other transactions were directed toward the free market where the exchange rate was progressively devalued. The goal of these measures was to protect international reserves and to decrease aggregate demand, reduce consumption and investment expenses, while generating exchange savings that would permit servicing the foreign debt.

These policies, however, affected the potential earnings and future possible consumption by the population. Therefore, it was necessary to arrive at an agreement with international creditor banks regarding the refinancing of public-sector foreign debt, to achieve an important reduction in the servicing burden. The Venezuelan government began contacts with the banking community in 1983, and in 1986 a restructuring agreement was signed. This had to be modified in 1987 due to the fall of oil prices, but this proved to be only a transitory solution until a new restructuring agreement was designed in 1990 in accordance with the Brady Plan mechanism.

In this regard, it should be pointed out that 1988 ended for Venezuela with mounting pressures in the foreign exchange market and an increasingly adverse economic outlook. The presence of negative real interest rates gave rise to the inefficient allocation of resources and an accelerated capital flight. As a result, and in spite of existing exchange controls, net international reserves fell steadily and in amounts that fluctuated between $926 million and $4,900 billion between 1986 and 1988. Additionally, in 1988, the fiscal deficit as a percentage of GNP reached 7.

4 percent and the inflation rate surpassed 30 percent, which was the highest level reached in Venezuela until that time. Unfortunately, the inflation rate became even worse in 1989, when it reached 80.1 percent, the highest registered until now. The 1990 Restructuring Agreement For the purpose of guaranteeing the viability of the economic adjustment and reform program adopted in 1989, it was essential to resolve the problem of servicing the public-sector foreign debt. The servicing of such debt on average represented almost 40 percent of the value of oil exports between 1982 and 1988, while the interest payments represented slightly more than 20 percent of the total fiscal expenses between 1987 and

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Latin American Financial Markets Essay Example | Topics and Well Written Essays - 2750 words”, n.d.)
Latin American Financial Markets Essay Example | Topics and Well Written Essays - 2750 words. Retrieved from https://studentshare.org/miscellaneous/1503312-latin-american-financial-markets
(Latin American Financial Markets Essay Example | Topics and Well Written Essays - 2750 Words)
Latin American Financial Markets Essay Example | Topics and Well Written Essays - 2750 Words. https://studentshare.org/miscellaneous/1503312-latin-american-financial-markets.
“Latin American Financial Markets Essay Example | Topics and Well Written Essays - 2750 Words”, n.d. https://studentshare.org/miscellaneous/1503312-latin-american-financial-markets.
  • Cited: 0 times

CHECK THESE SAMPLES OF Latin American Financial Markets

The importance of exchange rate regimes

The study “The importance of exchange rate regimes” seeks to look at how different exchange rate regimes lead to disparity in inflation behavior and economic growth in countries alongside why some regimes fail.... Studies show that countries often use the fixed exchange rate system.... hellip; This study examines how countries choose on exchange rate regime to employ and how such decisions lead to trade and investment flow performance....
11 Pages (2750 words) Essay

The Latin American Markets

Although is still early to say whether the recent financial market crisis may affect or not the emerging markets -and particularly the Latin American ones -, it could be said that they are going probably be less affected than those more mature markets as the USA or the EU. … On principle, common sense and previous experiences (let's remember the October 19th of 1987 crisis, when the Dow Jones suffered its worst fallen in peaceful times, going down in a 22% and tainting the European and Japanese Stock markets; or when the disaster came in 1988 due to the storm in the Asian financial markets originated an unexpected non payment over the Russian debt1) pointed at South American Countries as ones of the most probable to be infected by the recent financial market turmoil. What tastes good to a goat will ruin his belly or How the Latin American markets may be affected by the recent financial markets turmoil Although is still early to say whether the recent financial market crisis may affect or not the emerging markets -and particularly the Latin American ones -, it could be said that they are going probably be less affected than those more mature markets as the USA or the EU....
2 Pages (500 words) Essay

Latin American Bond Markets

Since the nineties, several of the latin american countries have undertaken major policy reforms directed at ensuring the development of bond markets that had previously been non-existent.... Over the years, the bond market in Latin America has had many achievements in a pursuit that seeks to make this source of finance a dependable one to the… This is despite the many challenges involved. This paper explores the development of these markets and the challenges they face....
4 Pages (1000 words) Essay

The Problem of Unpaid Labor in Latin America

On the same score women have been found to be heavily involved in unpaid labor all across latin american economies.... Such efforts like bridging the gap in health, education, markets and access to credits as well as protection of labor rights have been devoted to address these alarming disparities.... Women and children form a significant part of the workforce in latin America but they suffer from maltreatment at their places of work due to poor or no pay for their services....
12 Pages (3000 words) Essay

The Geography of Latin America

Moreover, it has the largest number of Native Americans in the world (“Geography Resources”)Contemporary Issues Contemporary issues that face Latin Americans today include financial dependence on debt servicing systems within the country, export of raw materials, highly stratified social systems where there is corruption at every level of the government, and losses due to competition in the global market because most Latin Americans are undereducated and underskilled (“Latin America”)....
2 Pages (500 words) Essay

The Importance of Exchange Rates Regimes for Trade

This study “The Importance of Exchange Rates Regimes for Trade” examines how countries choose on exchange rate regime to employ and how such decisions lead to trade and investment flow performance.... It also seeks to look at how different exchange rate regimes lead to disparity in inflation behavior....
10 Pages (2500 words) Assignment

Immigrant Workers in Latin America

This essay "Immigrant Workers in latin America" explores the organization and occupation of low-income immigrant workers in San Jose and its neighborhood, California.... nbsp;… A big proportion of this informal labor market has employed immigrant workers who work under very poor conditions hence affecting the rate of deterioration of the working conditions in the formal sector....
7 Pages (1750 words) Essay

International Business Transactions: Financing Structure for Diario Limeno

For simplicity let us assume that the Latin American Financial Markets are mature enough to provide major financing products.... There are a number of financing options available to companies depending on how mature the financial markets of a country are.... Similarly, the USBs want PPC to offer guarantees or collateral on its american properties.... Similarly, the USBs want PPC to offer guarantees or collateral on its american properties....
12 Pages (3000 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us