Unit IX -Debt Crisis and Regime Change (1)

Question 1

What are the main causes of the debt crisis?

Answer 1

Fiscal deficits and persistent high inflation

Legacy of ‘Classic populist’ macroeconomic policies and anti-populist backlash.

Question 2

What was the legacy of the 1980s in Argentina regarding debt?

Answer 2

The debt is with the people, not with the IMF

This phrase reflects the perspective that the burden of debt ultimately falls on the citizens rather than the lending institutions.

Question 3

What role did the IMF and US Treasury play in the debt crisis?

Answer 3

Provided recommendations and policies including conditionality for austerity, financial, and trade liberalization.

Question 4

What were the main effects of the debt crisis in Latin America?

Answer 4

Defaults, economic recession, and increased poverty levels.

Question 5

What is the Brady Plan?

Answer 5

A plan designed to resolve the Latin American debt crisis through debt restructuring.

Question 6

What were the fiscal policies before the 1970s in Latin America?

Answer 6

Domestic money printing to finance budget imbalances.

Question 7

Fill in the blank: The debt-led growth strategy was used to support _______ in the 1960-70s.

Answer 7

heavy industry.

Question 8

How did the oil shocks of 1973 and 1979 affect Latin American debt?

Answer 8

Led to a massive accumulation of petrodollars and aggressive lending to developing countries.

Question 9

What was the Volcker shock?

Answer 9

A contractionary monetary policy that increased the federal funds rate as high as 20% in 1981.

Question 10

What was the impact of the Volcker shock on Latin American countries?

Answer 10

Massive increase in debt servicing costs due to higher interest rates.

Question 11

What did the World Bank state about the debt problems of developing countries in 1983?

Answer 11

Caused by illiquidity, not insolvency.

Question 12

What does fiscal austerity entail?

Answer 12

Cuts in public works and social spending.

Question 13

What were the social economic costs of the IMF’s policies?

Answer 13

Aggravated recession, increased unemployment, and poverty.

Question 14

True or False: New lending after the 1982 crisis was primarily for investment in productive sectors.

Answer 14

False.

Question 15

What is meant by ‘debt trap’?

Answer 15

Governments borrow more to avoid defaulting on previous loans, leading to deeper economic stagnation.

Question 16

What was the outcome of rolling over old loans?

Answer 16

Extended repayment periods but at higher interest rates.

Question 17

Fill in the blank: The debt servicing ratio reached _______ of exports value in 1982.

Answer 17

60%.

Question 18

What did the term ‘breathing room’ refer to in the context of Latin American debt?

Answer 18

Short-term relief from debt restructuring arrangements.

Question 19

What did the IMF conditionality require from borrowing countries?

Answer 19

Implementation of austerity measures and tight monetary policies.

Question 20

What was the effect of rising debt levels in the 1970s?

Answer 20

Debt-to-GDP ratios increased significantly.

Question 21

What was the impact of the US monetary policy shock on Latin America?

Answer 21

Interest rate hikes led to an unsustainable debt burden.

Question 22

What did the World Bank suggest was necessary to restore creditworthiness?

Answer 22

Time and adjustment to reduce domestic absorption of resources.

Question 23

What was a major consequence of the 1982 Mexican default?

Answer 23

Contagion in the region leading to a major international debt crisis.

Question 24

What is ‘Breathing Room’ in the context of LA governments?

Answer 24

Short-term relief from debt obligations

This term refers to arrangements made to alleviate immediate financial pressures.

Question 25

What does 'Involuntary Borrowing' mean?

Answer 25

Countries forced to take on more debt to avoid default despite worsening repayment capacity ## Footnote This situation arises when macroeconomic conditions do not improve.

Question 26

What was the impact of high interest rates maintained by the US FED?

Answer 26

Kept LA debt extremely costly and limited exports ## Footnote This contributed to the inability of debtor countries to grow out of the crisis.

Question 27

What was the state of the Debt Problem by 1985?

Answer 27

Still unsolved and growing, with rising debt-to-GDP ratios ## Footnote Many Latin American countries remained in crisis management mode.

Question 28

What was a major concern for the US regarding LA democracies in the 1980s?

Answer 28

Increased poverty levels and inequality posed risks of leftist movements gaining traction ## Footnote This influenced US intervention policies.

Question 29

What was the Baker Plan of 1985?

Answer 29

Encouraged new lending from commercial banks to revive growth in LA ## Footnote It ultimately failed as banks were unwilling to provide new loans.

Question 30

What were the Brady Bonds?

Answer 30

Converted old bank loans into bonds with lower face values or longer maturities ## Footnote Introduced under the Brady Plan to help LA regain financial stability.

Question 31

What was the effect of the Brady Plan on debt service payments?

Answer 31

Reduced net outflows from 5% of GDP to 2% of GDP ## Footnote It aimed to alleviate the financial burden on debtor countries.

Question 32

What characterized the 'lost decade' in Latin America?

Answer 32

Low growth, high unemployment, high inequality, and extreme poverty ## Footnote This period was marked by significant social and political unrest.

Question 33

What were the social repercussions of the debt crisis?

Answer 33

Protests against cuts in wages, education, and healthcare ## Footnote Austerity measures led to declining living standards.

Question 34

What was a structural adjustment program imposed by the IMF and World Bank?

Answer 34

Forced cuts in social spending and privatization ## Footnote These measures did not immediately restore economic growth.

Question 35

What was the public deficit in Argentina as a percentage of GDP in 1982-1990?

Answer 35

4.2% ## Footnote This reflects the economic struggles Argentina faced during this period.

Question 36

Fill in the blank: The crisis led to a rise in _______ in Latin America.

Answer 36

informality in the economy

Question 37

What was the impact of currency devaluation on debt servicing?

Answer 37

Debt value and servicing costs skyrocket ## Footnote This made countries more vulnerable to global changes.

Question 38

What was the result of the 1988 plebiscite in Chile?

Answer 38

Votes against Pinochet’s continuation in power ## Footnote This led to free elections and a new constitution.

Question 39

What were the underlying problems of the LA debt crisis?

Answer 39

Structural solvency issues rather than liquidity ## Footnote This distinction highlights the complexity of the crisis.

Question 40

True or False: The Brady Plan completely resolved the debt crisis.

Answer 40

False ## Footnote It did not end the problem, merely postponed it.

Question 41

What was a key characteristic of the IMF's approach to Latin America during the crisis?

Answer 41

Imposition of austerity measures ## Footnote This approach faced criticism for failing to address underlying economic issues.

Question 42

What campaign is referenced in the 2012 movie?

Answer 42

The campaign to end the Pinochet regime in 1989

Question 43

What did the Brady plan fail to address?

Answer 43

The problem of debt; it was not a liquidity issue

Question 44

What did international financial lending renew with?

Answer 44

New conditionality including trade liberalization and freer markets

Question 45

What does trade liberalization involve?

Answer 45

Reform and significant reduction of tariffs

Question 46

What was the goal of dismantling protectionism?

Answer 46

To eliminate distortions in trade

Question 47

Which round led to the establishment of the WTO?

Answer 47

GATT Uruguay round (1993) and WTO (1995)

Question 48

What was a significant change in tariff rates from 1985 to 2000?

Answer 48

A general reduction in average tariff rates across various countries

Question 49

What trend was observed in unemployment rates from 1980 to 1995?

Answer 49

An increase in unemployment rates

Question 50

What is one effect of trade liberalization on labor markets?

Answer 50

Increasing informality in labor markets

Question 51

What was a consequence of de-industrialization?

Answer 51

A leap in unemployment and loss of skilled labor jobs

Question 52

What is Mercosur?

Answer 52

A trade agreement among Argentina, Brazil, Uruguay, and Paraguay established in 1982

Question 53

What was the impact of Nafta on trade?

Answer 53

Increased intra-regional trade among Mexico, US, and Canada

Question 54

What percentage of regional exports was intra-regional trade in 2006?

Answer 54

70%

Question 55

What happened to social spending per capita from 1980 to 1995?

Answer 55

It decreased relative to 1980 levels

Question 56

Fill in the blank: The average tariff rates in Peru in 1995 were ______.

Answer 56

16.2

Question 57

What was the urban informality rate in 1995?

Answer 57

55.7%

Question 58

True or False: Trade liberalization led to significant growth in productivity for all countries.

Answer 58

False

Question 59

What does the evidence suggest about trade openness and economic growth in Latin America?

Answer 59

The evidence is less than robust

Question 60

What is a common criticism of trade liberalization policies?

Answer 60

They may be proxies for other policy or institutional variables

Question 61

What was the GDP per capita annual growth for Chile from 1991-2000?

Answer 61

4.2

Question 62

What is one outcome of rising informality in labor markets?

Answer 62

Did not have effects in wages; high skill premia persisted