jan 1, 1982 - Latin America Debt Crisis

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Three events led to Latin America being very much in trouble in the early 1980s.

First, the OECD recession reduced demand for foreign goods, thus making demand for Latin America's goods fall.

Second, the oil shocks. The price of oil increased a lot multiple times during the 1970s.
This made the import of such an essential material very expensive, so much so that part of the debt that Latin America was accumulating was used to pay off big imports of oil.

Third, the federal interest rate increase, which made the debt interest rate Latin America had 8% bigger (about 4 to 5 billion dollars more every one percent).

These three events, of course also the massive borrowings of the Latin American governments, led to Mexico's Prime Minister announcing that Mexico couldn't repay its debt.
This increased fear in lenders that also other countries couldn't repay, so they stopped lending.
That meant that debtors couldn't pay, as they mostly relied on loans also to pay back other loans.
This led the rest of the few lenders to stop lending, which led to even more countries running out of money.
Economies collapsed and by 1983 thirty-four South American countries were formally renegotiating their debt, while a dozen more were in serious troubles.

It was decided that these economies would have to reformulate a plan of macroeconomic stabilization and economic adjustment (target on inflation, government spending, budget deficits...).
This plan had to be approved by the International Monetary Fund, and if it gets the approval, then the country was to receive a small amount of money from the IMF.
The progress would be tracked and if the requirements agreed wouldn't be met, then the loans would be halted.

The Latin American debt crisis made economies depressed for years. Inflation was high, real wages were decreasing and income per person was on the same track as wages.

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