Latin American Debt Crisis - Effects of Latin American Debt Crisis and The IMF

Effects of Latin American Debt Crisis and The IMF

Since Latin American countries, such as Mexico and Brazil, were not able to pay back their foreign debts, it showed that Latin America is not able to keep up with the pace in which their debts grew. Before the crisis, Brazil and Mexico tried to borrow money to enhance economic stability and reduce the poverty rate. But after continuously borrowing money, they fell in the whirlpool of debt, and the innovations and improvements from the past few years became meaningless . During the 1970s the world fell into an international recession which strained and put stress onto the economies of countries all over the world. Many major nations and countries attempted to slow down and stop inflation in their countries by raising the interest rates of the money that they loaned, causing Latin America's already enormous debt to increase further. In between the years of 1970 to 1980, Latin America's debt levels increased by more than one-thousand percent. The crisis caused the per capita income to drop and also ironically increased poverty as the gap between the wealthy and poor increased dramatically. Due to the plummeting employment rate, children and young adults were forced to join the drug trade, and some even began prostitution. The low employment rate also caused many problems like homicides and crime and made the affected countries undesirable places to live. Frantically trying to solve these problems, debtor countries felt pressured to constantly pay back the money that they owed, which made it hard to rebuild an economy already in ruins.

Latin America, unable to pay their debts, turned to the IMF (International Monetary Fund) who provided money for loans and unpaid debts. In return, the IMF forced Latin America to make reforms that would favor free-market capitalism. The IMF also helped Latin America utilize austerity plans and programs that will lower total spending in an effort to recover from the debt crisis. The efforts of the IMF brought Latin America's economy to become a capitalist free-trade type of economy which is a type of economy preferred by wealthy and fully developed countries. Latin America's growth rate fell dramatically due to the government's austerity plans which prevented them from further spending. The living standards also fell alongside the growth rate which caused much anger and hatred from the people towards the IMF. This caused the IMF to become a symbol that people came to dislike as more and more people began to reject the IMF's policies which imposed the power of international agencies over Latin America. The citizens of Latin America did not like the fact that their government was being controlled by "outsiders". Leaders and officials were ridiculed and some even discharged due to involvement and defending of the IMF. In the late 1980s Brazilian officials planned a debt negotiation meeting where they decided to "never again sign agreements with the IMF". The efforts of the IMF helped Latin America regain some balance after the debt crisis but was not able to resolve all of its issues.