Latin American Debt: Macroeconomic Environment and Economic Structure

Abstract

By using an econometric model of the Latin American region as a whole, the external and domestic factors that have an important bearing on the enduring debt problem in this region have been identified. External factors such as high interest rates, low commodity prices, and sluggish growth of the world economy are found to be important. Capital flight has also been a serious aggravating factor. However, the domestic economic structure characterized by inward—looking development policies and low marginal propensity to save has probably been as important as external factors. Simulation experiments in the projection period suggest that various forms of debt-relief plans cannot be considered to provide final solutions as long as the present economic structure of this region remains unchanged.