Lecture 21&22 - Latin America and the Debt Crisis

Lecture 21&22 - Latin America and the Debt Crisis -...

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Latin America and the Debt Crisis Characteristics in Latin American Countries 1. Import Substitution Industrialization (ISI) - This lead to problems in the 1970’s - Lead to a shift in fiscal policies 2. Great Inequalities of Distribution and Wealth - Mainly deals with the urban sector rather than the rural sector - Those who were producing agriculture were usually making good money - Therefore the richest people were generally the people with a large amount of land 3. Macroeconomic Instability - Had periods of generally high inflation - The poor had no money to pay taxes - The government had a hard time raising revenue, which contributed to budget deficits Overvalued Real Exchange Rates - Tend to lean towards overvalued real exchange rates - [Rr = (P/p*)Rn] where Rr = real exchange rate, Rn = the nominal exchange rate, P = domestic price level and P* = international price level - This harms exports because it deals with inflation, which makes the export market harder to compete Import Substitution Industrialization - Prior to WW2 Latin American countries tended to export primary products - Many of the manufacturing companies were controlled by foreign capital (ie. United Fruit Company, which contributed to a large amount of income) - This tended to lead to a huge gap between foreign and domestic workers - World developments in Latin America lead to them becoming more self-sufficient and having more manufacturing companies
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This note was uploaded on 04/18/2008 for the course ECONOMICS ECN 220 taught by Professor Jolly during the Winter '08 term at Ryerson.

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Lecture 21&22 - Latin America and the Debt Crisis -...

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