Latin American Debt Crisi (Ppt)

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<p>Financia l Crisis</p> <p>Presented by :-TEAM 3</p> <p>Team 3NAME Roll no. Abhinav Shukla (01) Pranav Prashant (32) Ronak Doshi (39) Ruchi (40) Sneha Verma (47) Subhasree Sahoo (49) Swaroop C Mohan (52) Swati Bhardwaaj (53)</p> <p>Lost Decade</p> <p>Latin American Debt Crisis</p> <p>Introduction Occurred in 1970s and 1980s. Occurred when debt obligation of Latin</p> <p>American countries exceeded their earning capacity.</p> <p>Background (1970s)</p> <p>PETRO-DOLLAR RECYCLING In 1973 oil prices quadrupled OPEC deposited huge amounts in</p> <p>banks</p> <p> Bank'recycled'deposits as loans to</p> <p>Latin American governments.</p> <p>Crisis (early 1980s)Due to American monetary policyInterest rates rose and Dollar become stronger. Demand for their exports fell. </p> <p>1975 to1982: Debtincreased @ 20.4 %</p> <p>pa.</p> <p>LOAN: $70 bn (1975) $340 bn (1983) DEBT SERVICES: $12 bn (1975) $66 bn (1982)</p> <p>August 1982 Mexico defaulted to service</p> <p>its debt</p> <p>Recovery strategies: Debt Restructure (1983 to 1989)</p> <p>MUDDLING THROUGH:</p> <p> IMF and World banks rescue loans </p> <p>Loans with conditionality</p> <p>THE BAKER PLAN</p> <p>1985 by US Treasury Secretary James Baker </p> <p>Based on the assumption of illiquidity </p> <p>Targeted 15 countries for $29 billion of new</p> <p>money$20 billion (commercial banks) $9 billion (IMF and World Bank)</p> <p>Recovery Strategies: Debt Reduction (1989)</p> <p>BRADY BONDS</p> <p>1989 by US Treasury Secretary Nicholas</p> <p>Brady</p> <p>Indebted countries bought their own debt </p> <p>Debt buy-back and debt-equity swap</p> <p>It aimed to: </p> <p> decreasing the face value of debt extending the time period of obligations Infusion of new money</p> <p>End of CrisisIn 1991, capital inflows &gt; outflows for the</p> <p>first time since the onset of the debt crisis.</p> <p> Mexico was the first country to retire its Brady bonds in 2003. Ecuador was the only one country that defaulted on Brady Bonds. </p> <p>Causes of crisisWeak fiscal policies. Oil prices sky-rocketed leaving a liquidity</p> <p>crunch.</p> <p> Recession in World economy. Short term loans at high rate of interest. Interest rates increased. Debts were used for non-productive</p> <p>Contraction of export Stronger dollar Capital flight Commercial banks stopped new money</p> <p>that created difficulty in refinancing of loans</p> <p> Floating interest rates</p> <p>Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988</p> <p>loan amount(in $bn) 25 25 30 40 60 70 80 120 150 190 220 280 330 350 370 380 420 480 450</p> <p>Growth rate 0.00% 20.00% 33.33% 50.00% 16.67% 14.29% 50.00% 25.00% 26.67% 15.79% 27.27% 17.86% 6.06% 5.71% 2.70% 10.53% 14.29% -6.25%</p> <p>Gross Domestic Product(Average Yearly Growth) Argentina Bolivia Brazil Congo Coted'Ivoire Ecuador Mexico Morocco Nicaragua Peru Syria Venezuela Averages 1965-80 3.4 4.4 9.0 6.2 6.8 8.8 6.5 5.7 2.5 3.9 9.1 3.7 6.3 1980-90 -0.4 -0.1 2.7 3.6 0.5 2.0 1.0 4.0 -2.2 -0.3 2.1 1.0 1.7 % change -111.76% -102.27% -70.00% -41.94% -92.65% -77.27% -84.62% -29.82% -188.00% -107.69% -76.92% -72.97% -73.02%</p> <p>Conclusion Recovery from crisis long and painful Strong economic fundamentals matters. </p>