This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: 2-1-2008Balance of Payments CrisisLending from Europe and U.S. banks to many Latin American countries at variable interest rates led to large external debts in many countriesCapital account balances (loans) were not matched by current account balances (trade) because Latin American export-earnings were declining, so Latin American economies faced balance of payments deficitsLarge debt repayments forced these economies into balance of payments crisesWhat is the IMF?Lender of last resortWhen all other credit lines have dried up, countries go to the International Monetary Fund to obtain:oFunds to allay short-term repayment difficultiesoPolicy prescriptions for fixing the domestic balance of payments problemsIMF Economic Stabilization PackagesShort-term crisis management, not long-term solutionProscribed set of policy choices to combat domestic overspendingDesigned to contract the economy, inducing recession-like environment that counteracts the balance of payments crisisThough these packages provide economically justifiable solutions to balance of payments crises, they also introduce or increase unemployment and poverty problems which causes...
View Full Document
- Spring '08
- American Politics