Chapter 4: 1980s: emerging markets debt default crises
As discussed in the last chapter, the economic shocks of the seventies caused severe economic imbalances, leading to crises in the eighties. Through the seventies, oil importing nations were forced to accept higher oil prices and/or restricted supplies, and developed nations felt obligated to assist developing countries in financing their oil needs. Mounting debt in developing countries was a tremendous liability, particularly when interest rates ratcheted up in response to burgeoning inflation. The debt crisis refers to the subsequent financial problems in liquidity-squeezed debtor countries all over the world. Although the debt crisis in Sub-Saharan Africa wrought disastrous effects on those economies, it was smaller in scale, especially in terms of private debt, than the crisis in Latin America. On the other end of the spectrum, Asia generally recovered more quickly due to higher growth rates (as in the case of Korea), targeted state intervention, and capital controls. Latin America, with large amounts of privately funded debt and a sudden slowdown in growth, bore the brunt of the crisis.
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