Question

Who was to blame for the Latin American debt crisis of the 1980s? To what extent should greedy bankers for this crisis?

Answer 1

The latin americn debt crisis of 1980s, is often referred to as the "Lost decade", as many latin american countries were not in a position to service their foreign debt obligations.

The US Fed and some other international institutions took some actions, to respond to the crisis which eventually solved the situation, but created some un-intended consequences.

Why did the crisis take place ?

There were two large oil price shocks, in the 1970's, which created current account deficits in most of the Latin American countries. Consequently, the shock had created current account surpluses among oil-exporting countries. US government started backing large American banks, to become intermediaries between the two groups.

The solution they came up with was, providing the exporting countries with a safe, liquid place for their funds and then lending those funds to Latin American countries

Latin American borrowing from US banks, increased exponentially during the 1970s. The potential risk of the increased intrustion of american banks in Latin American did not go unnoticed.

Interest rates rose globally, and in 1981 the world economy entered a recession. To cope with the recession, banks increased their interest rates and soon the Latin American countries soon found their debW burdens unsustainable

Where does the blame lie ?

The blame of the entire crisis, like most other crisis cannot be put on one single party, but it was kickstarted by the big greedy American banks.

They were intervening in a matter which did not concern them & the terms of the entire deal were structured in such a manner that was going to suit them eventually.

Once things with the economy went bust, the deal become unsustainable for the poor latin american countries while the big greedy american banks just got bigger and bigger

But on the other hand, the Latin american countries are to be blamed as well, because they started to over-leverage themselves to unsustainable levels, and it was only a matter of time before things would turn sour for them. They should have had the foresignt to seen the downturn in the economy to protect their national interests