Stabilization-In the 1970s

Stabilization-In the 1970s - In the 1970s, the oil shock,...

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In the 1970s, the oil shock, as the price of oil rose dramatically, caused a greater financial burden on Latin American countries, particularly countries like Brazil who relied on foreign oil (states that did not rely on foreign oil, like Mexico, were less affected). Even worse was the effects of the US and Britain raising interest rates in the early 1980’s to get those countries out of the recession. Most of the debt in LA was in dollars – American banks were flush with petrodollars during the 1970s (money from the sale of Middle Eastern oil deposited in American banks) and loaned a great deal of money to the rest of the world – particularly to LA. When the interest rates in the US rose, the cost of servicing the LA debt rose as well. The solution would have been to begin to export more – however, the export sector in LA was undeveloped – it had actually shrunk as a percentage of GDP during the years of import-substitution. Eventually, in 1982, many of the LA countries were forced to default on their debts. After defaulting on their debts, most LA countries were forced to adopt free market trade
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This note was uploaded on 11/27/2011 for the course POLISCI 1003 taught by Professor Olson during the Fall '11 term at GWU.

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