Document Type

Master's Culminating Experience

Publication Date

1994

Abstract

I believe that high external debt service requirements act as a restraint on economic growth and aggravate macroeconomic and microeconomic imbalances within an economy. Large future repayments act as a tax on investment, both foreign and domestic, encourage capital flight, and decrease savings. Inflation increases due to currency devaluations that result from the promotion of export goods and services in international markets to repay the debt and uncertainty in the domestic financial markets. Austerity measures, designed to correct fiscal problems, decrease public expenditures and private consumption. The final result is a lack of economic growth and a decline in the country's standard of living.

The goal of this thesis is to explain the effects of high external debt on the Latin American region during the late 1970's and throughout the decade of the 1980's. The large debt had a negative economic effect on Latin America and placed both the countries involved and the commercial banking industry in danger of financial crisis. This thesis explains the effects of official United States government and multilateral banking policy on the debt crisis and the actions that three individual countries to resolve their economic imbalances. The analysis enclosed does not claim that 100% of the negative effects were caused by high debt, only that a strong positive correlation exists between the high debt and the negative effects.

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