Debt and Foreign Capital

Rivers of ink have flowed in Latin America since 1982 in an attempt to explain the swift historical change that made the 1980s a decade of debt crisis. Much of this attention has been focused on the internal logic of the process that was set in motion when Mexico announced that it could not continue to service its debt in normal terms and that has been growing increasingly complex and convoluted ever since. Over the years, a generally accepted explanation has evolved that portrays the crisis as the result of excess liquidity originating in the unregulated development of the private international financial market, a rapid and dramatic increase in indebtedness driven by irresponsible creditors and debtors and stimulated by high inflation and virtually negative real interest rates, and the privatization of sources of credit and the prevalence of variable interest rates. It was these factors, it is argued, that created the preconditions for an explosion when the economic policies of the Reagan administration drove interest rates up sharply, the dollar exchange rate increased, and the terms of trade collapsed. All of these elements certainly participated in precipitating the crisis and, to a certain extent, in its inception, but this now-customary explanation places the beginnings of the process that led to the crisis in the mid-1970s, without any clear connection with the previous period of regional economic evolution. As a result, the rapid increase in the debt and the subsequent explosion seem a sudden break, primarily externally induced and attributable to the irresponsibility of lenders obsessed with placing their loan capital in violation of the sacrosanct rules of banking security and borrowers preferring luxury imports and armament purchases to development investment. Foreign capital and the payment of dividends have been supplanted as topics of debate by

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