Question

Discuss some of the external (not within the country or under the control of the country in question) reasons that compelled countries to borrow large amounts of money in the 1970s thus fueling the debt crisis of the 1980s.

Answer 1

Most of Latin American countries and other developing countries were borrowing heavily and making investments in development of infrastructure in 1970s. Most of of funds were provided by some oil rich countries and few countries were funded by the WB. Few oil rich countries were also taking loan expecting the further rise in oil price would garner enough revenue. But opposite occurred, and these countries were left with lesser amount of liquidity. Mexico, Brazil and other Latin American countries defaulted on loans. It created crisis world over. Government banks were in swamp of debt.

These countries were rescued by the WB and IMF, strict conditions were imposed on these countries. These countries were obliged to introduce economic reforms. privatization and liberalization were followed by these countries.