Econ 161-Lecture 15

Econ 161-Lecture 15 - Lecture15 c ⃝ Marc-AndreasMuendler...

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Unformatted text preview: GlobalIntegrationofLatinAmerica Lecture15 c ⃝ Marc-AndreasMuendler UniversityofCalifornia,SanDiego May24,2011 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler TheCostsandBenefitsofInternationalMoney • Borrowercountriescanfinancetheirinvestmentsandgrowthdespite lowerdomesticsavingsrates. Internationallenderscanreaphigherreturnsforhigherrisksandben- efitfromopportunitiestodiversifytheirportfolios. • Borrowersrisksharperrecessionsfollowingpossiblecrises. Lendersrisksharpdepreciationsandsovereigndefaults. • Regulatedandwellsupervisedfinancialsectors,alongwithacare- fulmanagementofthedebtstructure,canmitigatetheriskswithout sacrificingthebenefits. 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler TheDebtCrisisofthe1980s • AfteradecadeofrelativelyhighcreditflowstoLatinAmerica,in1982 Mexicodeclaresitselfunabletoserviceitsforeigndebt • Mexico’sdefault(thelargestinhistoryatthetime)makesinternational lendersreconsidertheircredittootherLatinAmericaneconomies • Unsuccessfulmacroeconomicstabilizationpoliciesandstructuralre- formsresultinLatinAmerica’s“LostDecade” • Debtrestructuringandthereturnofinternationalcapitalduringthe 1990salleviatedtheburdenbutstronggrowthhasyettoresume 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler ForeignBorrowingandtheCurrentAccount • TheCurrentAccountrecordsthechangeinacountry’snetassetpo- sition W • ThecompleteCurrentAccount CA =( EX − IM )+ R ∗ · W includes theTradeBalance ( EX − IM ) andForeignIncome R ∗ · W . • Inanopeneconomywithanon-zeroCurrentAccountbalance,Gross DomesticProductandGrossNationalIncomediffer: Y GNI = Y GDP + R ∗ · W. 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler Production,NationalIncome,andTradeRevisited • GDP:GrossDomesticProduct Y GDP = C + I + G +( EX − IM ) – GDPignoresforeignincome R ∗ · W :Incomeearnedonforeignassetholdings Foreigninvestorsearninterest R ∗ ontheirwealth W inLatinAmerica( W< ) – EX :Productionshippedabroad, IM :Productsobtainedthroughimporting • TheCurrentAccountBalance CA =( EX − IM )+ R ∗ · W includes theTradeBalance ( EX − IM ) andForeignIncome R ∗ · W . • Interestpayments R ∗ · W< mustbefinancedwithnetexports 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler Production,NationalIncome,andTradeRevisited • GNI:GrossNationalIncome Y GNI = C + I + G +( EX − IM )+ R ∗ · W – R ∗ · W :Incomeearnedonforeignassetholdings Foreigninvestorsearninterest R ∗ ontheirwealth W inLatinAmerica( W< ) – EX :Incomeearnedbyexporting, IM :Incomespentbyimporting • TheCurrentAccountBalance CA =( EX − IM )+ R ∗ · W includes theTradeBalance ( EX − IM ) andForeignIncome R ∗ · W . • Interestpayments R ∗ · W< mustbefinancedwithnetexports 15.TheDebtCrisisofthe1980sandDebtRestructuring Econ161, c ⃝ M.Muendler ExternalDebtperGDPinArgentina,Brazil,CostaRicaandMexico R a t io o f D e b t p e...
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This note was uploaded on 08/14/2011 for the course ECON 161 taught by Professor Muendler during the Spring '11 term at San Diego.

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Econ 161-Lecture 15 - Lecture15 c ⃝ Marc-AndreasMuendler...

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