RABIA KAMAL

ABEERA

The crisis starts after Mexico in 1982

declared that they wont be able to
service their debts.
Despite the devaluation of the peso,
Mexico is unable to stop its loss of
reserves and runs out of cash.
International reserves are only sufficient
to cover 3 weeks of imports.

In August 12th, 1982

In September 1st, 1982 The government

nationalizes Mexicos private banking
system in order to prevent bankruptcy of the
private banking sector and imposes
comprehensive exchange controls

Mexicos Minister
of Finance Silva Hertog informs the US
government and the IMF that Mexico is
unable to service its external debt of USD
80bn

1.
2.

3.

Due to first oil shock Brazils economy

suffered for the following reasons:
Trade im-balance and rising imports
Recession slowed world trade growth &
so did export
Interest payment rose and so did debt.

In January 1983 Government submitted the

letters of Intent to IMF promising to make the
economy more stable by balancing its imports
and exports.

IMF proposed a standard package:-

less public investment

Price changes to increase exports and limit on
domestic credit expansion which was not in
their favor
Eventually Brazils financial needs improved
in 1983-1984 with help of US recovery

By early 1987, President Sarney won the

elections based on his Cruzado plan Plan
was a flop
Inflations returned to an annual 200%
Trade accounts suffered
Brazils miracle economy was in danger
once more
Brazil now wants a long-term solution and
believes it must be found by the
government rather than the banks

African debt especially for the low-income

countries requires special treatment:
50% long term debt is owed to IMF and
World Bank
IMF gives 7.4% interest on stand-by loans
By 1985 Africa suffered from a collapse of
IMF net flows from over $1 bn to $118 m
between 1981-1985
This meant government raised private
bank loans at high rates of interest to pay
off IMF arrears

The financial gap is too big

Africas problems including debt arise
from domestic mismanagement
African government is implementing the
program of action for economic recovery
However, if Africa is unable to improve
their financial needs it will put the reform
process in loss