The Debt Crisis - 1. The Debt Crisis a. Understand the...

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1. The Debt Crisis a. Understand the events leading up to the debt crisis of the 1980s Before the 1970s, most lending was with the IMF, world banks, regional development banks. “d” the rate of growth in new loans was high, and “r” the rate o f interest was low. As long as productive development is fed, all is good. b. What were the factors that set up the developing countries for disaster between 1974 and 1979? During the 1970s, they experienced the first oil shock. Commercial lending to developing countries is significant- OPEC profits were soaring with money to lend, and this borrowing made up for falling exports in recessions. They kept borrowing and “r” stayed low during this time. c. What was the impact of the second oil shock of 1979? The impact of the second oil shock : increased interest rate in developed countries to support their LR growth strategy, decrease in export earnings in developing countries, and decrease in commodity prices . They had a really big “r”, and now they have to keep up with “d”—this led to more massive borrowing, massive debt-servicing obligations. In
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The Debt Crisis - 1. The Debt Crisis a. Understand the...

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