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Surname 1 Student’s Name Instructor’s Name Course Date HUMN 3981 A2 Part A: Short Critical Reflection Like many other regions, colonialism was a challenge to the growth and development of Latin America. Colonialists’ foremost goal was to exploit colonies in the region. Thus, many Latin American countries are still facing the problems created by the colonialists. Specifically, the colonial masters created socio-economic systems that promoted income inequalities, as evident in the struggle to overcome poverty in Latin America. The continuous attempt by individual governments in the region to fight income inequalities is yet to bear the much-needed positive outcomes. However, income inequality is not the only issue affecting Latin America. Other factors, such as globalization and industrialization, are emerging strongly in the region’s current and future development debate. Whether or not the income disparities dominating Latin America result from colonization is a dominant question when examining the region’s development history. There is still a significant economic gap between Latin America and other advanced regions, including North America and Europe. A considerable percentage of the Latin American population has less wealth. The vast income gap between the poor and the rich is another critical observation, evident in the low income per capita (Maas n.p). However, it seems unfair to blame colonialism for the current socio-economic situation in Latin America. Governments have failed to establish the necessary structures to address the socio-economic injustices initiated by the colonialists

Surname 2 (Greene and Branford 22-23). On the contrary, people in governance have been promoting the vices of the colonialists by exploiting the poor. Economic integration and globalization have resulted in many economic gains in Latin America. The region has been undergoing fundamental socio-economic transformation for the past century. Countries such as Brazil have a new economic face due to adopting policies that promote industrialization. Still, it is not all rosy in the region due to the adversities of economic development on the ecology (Greene and Branford 40-41). Most Latin American countries exhibit poor conservation records despite excelling in trade and investment. However, many countries embrace sustainability measures to catch up with the rest of the world. Globalization is opening up Latin America to the world, increasing economic opportunities. Countries in the region are taking advantage of trade liberalization to establish trade links with other countries worldwide. Part B: Explain the factors that contributed to the debt crisis in Latin America Debt is a significant factor impeding development in many developing regions. One such region is Latin America, which experienced a severe debt crisis in the 1980s. The crisis destabilized individual economies in the region, leading to a public outcry. The region's per capita declined by 14% (from 112% to 98%) of the global average. The same happened with the region's GDP, which dropped from 34% to 26% (Ocampo 87). This essay examines the causes of the external debt in Latin. Latin America had a considerable weight in evading economic defaults, forcing the countries in the region to employ ineffective policies. Most researchers link the debt crisis in Latin America to the industrialization model adopted by countries in the region from the 1950s.

Surname 3 The first factor linked to the debt crisis in Latin America is excessive external borrowing. Latin America was lagging in economic development, making borrowing essential for promoting economic growth. Borrowing was not a problem, primarily if governments utilized the funds well. Arguably, the countries did not use the borrowed money optimally (Bulow and Rogoff 31). Arguably, borrowing could have been beneficial if there was transparency in governance. The embezzlement of funds dominated the region, demeaning the idea of external borrowing (Ocampo 97-98). Excessive borrowing triggered higher interest rates from the lenders. Latin American countries developed an increased appetite for loans triggering the lenders' desire to gain immensely from them (Ocampo 99). Latin American countries could not sustain loans, given the high-interest rates. Consequently, they began defaulting on loan repayment. Secondly, the external debt crisis was exacerbated due to the boom-bust cycle in external financing. Notably, many states in the region began embracing private funding from the late 1950s through the 1970s. Such a trend existed earlier in the period leading to the great depression. Unlike private financing in the 1920s and 1930s, the happenings in the 1980s became a burden to local lenders. Local banks began experiencing deficits in their balance of payments, thus, opting for protectionism (Ocampo 97). Notably, Peru and Mexico were first on the list to embrace external borrowing to address the situation, making them the first to begin struggling to repay loans (Ocampo 97-98). This trend replicated in other Latin American countries, culminating in a regional debt crisis. The crude oil price increase is another major factor linked to the external debt crisis in Latin America. Arguably, Latin American nations rely on oil imports; therefore, a hike in international oil prices piled pressure on the economies. A spike in crude oil prices in the 1970s aggravated the debt crisis by forcing Latin American countries to increase their borrowing. The

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Surname 4 oil price hike accounted for the approximately 30% annual increase in borrowing (Devlin and Ffrench-Davis 5-6). A further explanation reveals that oil producers often seek to cash more from the price hike. They direct the excess profits to the lenders or the international banking system. These institutions have more funds to lend, encouraging countries to borrow. In other terms, the oil price hike created a vicious circle of lending to the detriment of Latin American countries. The rising debt became a burden to Latin American economies, culminating in various policy proposals. The first strategy was the Baker plan fronted by the then U.S. Secretary of the Treasury. It aimed to make debt management sustainable. Latin American countries had to develop and enforce reforms, mainly liberalization of their economies, to qualify for more funding (Devlin and Ffrench-Davis 22-23). The many disagreements surrounding the Bradley plan made it inefficient. The second primary policy intervention was bridge financing. According to Miller, The intervention entailed bridge loans, ensuring that governments reduced their debt by paying interests alone (681). Creditors also benefited because a high default rate would have hindered them. Brady's plan was another macroeconomic policy intervention to Latin America's debt crisis. Its proponents suggested loan secularization as a debt reduction strategy. According to the intervention, converting public bonds into foreign debt loans would suppress the debt situation. Bradley argued that governments could use bonds to raise money to repay loans (Devlin and Ffrench-Davis 24). Local banks could lend to governments given the guarantee of reduced default risk. This measure seemed most tenable in the long term. It has been a foundation for economic growth in the region by enabling local investors to borrow money for investment. According to the discussion, multiple factors were linked to Latin America's external debt problem in the 1980s. The factors examined in the paper include untenable borrowing, boom-

Surname 5 bust cycle in outside financing, high-interest rates on loans, and oil price increase. All the other factors center on uncontrolled borrowing and untenable interest rates. Latin American countries struggled to stop borrowing, making other factors such as crude oil prices raise an excuse to wallow deeper in debt. The rising debt threatened Latin America's economic stability. Governments had to devise measures to quell the situation. The proposed macroeconomic policies included the Brady plan, bridge financing, and Baker plan. These interventions focused on sustainable funding. Works Cited

Surname 6 Green, Duncan, and Sue Branford. Faces of Latin America . New York, N.Y: Monthly Review Press, 2013. Print. Maas, Steve. The Origins of Latin American Inequality , 2015, www.nber.org/digest/jun15/origins-latin- american-inequality. Accessed 18 Aug. 2021. Bulow, Jeremy, and Kenneth Rogoff. "Cleaning up third world debt without getting taken to the cleaners." Journal of economic perspectives 4, no. 1 (1990): 31-42. Ocampo, José Antonio. "The Latin American debt crisis in historical perspective." Life After Debt . Palgrave Macmillan, London, 2014. 87-115. Devlin, Robert, and Ricardo Ffrench-Davis. " The great Latin American debt crisis: a decade of asymmetric adjustment ." (1994). Miller, Jessica W. "Solving the Latin American sovereign debt crisis." U. Pa. J. Int'l Econ. L. 22 (2001): 677-708.

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