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Latin American Debt Crisis

Also Known As The Lost Decade

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A sovereign debt crisis beginning with Mexico's mid-August 1982 default announcement, which spread across Latin America and left external debt near 315 billion dollars by 1983. On 1 September 1982, President Jose Lopez Portillo nationalized Mexico's private banks in his final state of the nation address, declaring bankers had looted the country. The crisis coincided with the region's transitions from military rule: Argentina's junta collapsed in 1983 after the Falklands War compounded its financial crisis, and Brazil moved from military government to a civilian president, Tancredo Neves, elected in January 1985. The Brady Plan of 1989 finally resolved the crisis by exchanging bank loans for tradable bonds; the intervening years became known in the region as the Lost Decade.

Facts
Year
1982 1
Event Date
1982-09-01 1
1 September 1982 is the date of Lopez Portillo's bank nationalization address; the crisis's actual trigger was Mexico's payment default announced days earlier, in mid-August 1982.
Location
Mexico, spreading to Brazil, Argentina and across Latin America 1
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They Have Looted Us: Mexico's 1982 Bank Nationalization

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

On 1 September 1982, in his final state of the nation address, President Jose Lopez Portillo told Mexico that its private bankers had looted the country and would not be permitted to loot it again, and announced the nationalization of every private bank in Mexico. The declaration came three weeks after Mexico's finance minister had privately told the IMF, the US Federal Reserve and the US Treasury that the country could not make an upcoming debt payment, the moment usually marked as the start of the wider Latin American debt crisis. The peso had already fallen from roughly 25 to the dollar in February to over 100 by late August, with a black market rate near 200 to 1. The government closed the banks to the public for five days while it worked out the takeover, assumed roughly ten billion dollars of private foreign debt on top of the fifty seven billion the public sector already owed, and watched its own central bank director resign in protest of the accompanying exchange controls. Lopez Portillo's speech, and the bank doors closed behind it, became one of the crisis's defining images: a government publicly assigning blame at the very moment its own economic model was collapsing.

Debt, Defeat and Democracy: How the Crisis Ended Military Rule

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

The debt crisis broke over Latin America at the same moment several of its largest countries were already governed by military juntas that had borrowed heavily to finance industrial growth. In Argentina, the junta's defeat in the 1982 Falklands War arrived alongside a financial collapse in which interest payments alone were consuming the entire national trade surplus, and the combined blow brought the military government down. Argentines held their first free presidential election in a decade in October 1983. In Brazil, the process ran slower and more improvised. A civil campaign called Diretas Ja drew crowds over a million strong through 1983 and 1984 demanding direct elections, but fell just short in Congress; an electoral college chose opposition figure Tancredo Neves as president in January 1985 instead. Neves never took office. He fell gravely ill the night before his inauguration and died five weeks later, and his running mate, Jose Sarney, became Brazil's first civilian president since 1964 almost by accident. Whether the debt crisis directly caused these transitions or simply arrived alongside them remains debated, strongest in Argentina's case, more gradual in Brazil's, but in both countries the economic collapse and the end of military rule are impossible to tell apart cleanly.

Cross-Tradition Connections

Associated With

IMF program conditionality underpinned the 1989 Brady Plan that restructured the defaulted sovereign debt of Mexico and other Latin American countries.

In Era

Participant

Additional Source Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)US skepticism paragraph, Mexico's IMF credit negotiation
In the Other Atlases
Sources
1. Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)
Christian Science Monitor1982 bank nationalization report
Quote, 1982 bank nationalization report
Mexico's private banking system was perilously close to collapse. It simply did not have the dollars to pay overseas creditors, largely in the United States, who were calling their loans.
View the Source
1. Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)
Christian Science MonitorIn Category: EventsView the Source
1. Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)
Christian Science MonitorIn Era: The Contemporary PeriodView the Source
1. Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)
Christian Science MonitorLong-Form Articles: They Have Looted Us: Mexico's 1982 Bank NationalizationView the Source
1. Why Mexico Had No Choice but to Nationalize Banks (Christian Science Monitor, 1982)
Christian Science MonitorParticipant: International Monetary Fund, US skepticism paragraph, Mexico's IMF credit negotiation
Quote, Participant: International Monetary Fund, US skepticism paragraph, Mexico's IMF credit negotiation
They could complicate Mexico's negotiation of $4.5 billion in credit from the International Monetary Fund.
View the Source
The Brady Plan (Emerging Markets Trade Association)
Emerging Markets Trade AssociationView the Source
Brazil's Tancredo Neves Battled for Democracy (Washington Post obituary, 1985)
The Washington PostLong-Form Articles: Debt, Defeat and Democracy: How the Crisis Ended Military RuleView the Source
Dissenting Readings (1 dissenting reading)
Description

Against accounts that place primary causal weight on the external shock of the US Federal Reserve's Volcker-era interest rate increases, Rudiger Dornbusch and Sebastian Edwards argue in Macroeconomic Populism in Latin America (NBER Working Paper 2986, 1989) that the extreme vulnerability which made the crisis possible was, by and large, the result of unsustainable domestic policies: government overspending, overvalued exchange rates and capital flight, a recurring pattern across Argentina, Brazil, Mexico and other borrowers, regardless of whether the government in question was military or civilian.

A dissenting reading, from Rudiger Dornbusch and Sebastian Edwards, economistsRudiger Dornbusch and Sebastian Edwards, Macroeconomic Populism in Latin America (NBER Working Paper 2986, Dornbusch and Edwards, 1989), National Bureau of Economic Research, 1989
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