Causes Of The Debt Crisis In The 1980s
The purpose of this essay is to examine the debt crisis that took place in the 1980s by assessing the role of the international bankers as well as the government’s role in both debtor and creditor nations. Once Mexico announced that they could not repay their debt, soon after countries such as Brazil and Argentina followed the same path, resulting in developing countries being faced with a debt crisis (Carmichael 1989, 121). Although majority of the outcomes were negative, surprisingly the debt crisis led to positive outcomes, for example secondary markets were established, industrial countries experienced low-inflationary growth and banks’ balance sheets in creditor nations were strengthened (Carmichael 1989, 121). This essay will not only address the causes and origins of the debt crisis in the 1980s, but more importantly draw attention to the ways in which this debt crisis may have been prevented.
It is imperative to first define the debt crisis as well as to determine the origin and causes of the debt crisis in the 1980s before one can provide an explanation for the actions of the bankers and governments who were involved. Simply put, the debt crisis occurred when developing countries borrowed money from international creditors in order to improve infrastructure and move towards industrialization (O’brien 1986, 25). More specifically, the debt crisis was initiated when Mexico was unable to pay back their loan and “declared a moratorium” (Mohanty 1992, 465). Due to the
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