LATIN AMERICAN EXTERNAL DEBT AND ECONOMIC GROWTH: THE ROLE OF DEBT RESCHEDULING

Abstract

This chapter provides an overview of economic growth and external debt of Latin America. Economic growth for most Latin American countries means a chronic need for a net inflow of capital, if attainable growth rates are to be achieved and sustained. From 1950 to 1980, Latin America achieved a growth rate higher than most other regions in the world and even achieved a relatively high per capita growth rate, despite a rate of population growth of over 2.5% per year. During these 30 years, Latin America borrowed externally to achieve these growth rates. In any case, Latin America borrowed extensively. Debt statistics on an internationally comparable basis are available from about 1970. During the 1970s, the external debt of Latin America rose from about US $25 billion to US $165 billion or to a level probably 4-to-5 times the level of monetary reserves. The explanation for this growth record is not to be found in only one factor or variable even if it is as broad and important as external borrowing. No one variable, be it money supply, exchange rates, terms of trade, savings, budgetary behavior, investment, and so forth, can explain growth rates, but in developing countries, a need for a net inflow of capital has been ever present, resulting in large increases in external debt. The chapter discusses the role of debt rescheduling. Debt rescheduling reflects the major strategic decision of borrowing countries.