e debt crisis, its origins and development will first be documented. The extent of the problem in the three Latin American countries will be analyzed, and the effects of recent actions by commercial lenders and creditor countries will be subject to scrutiny. Finally, competing theories of the causes and solutions to the international debt crisis will be examined for their descriptive utility.
Extent of the International Debt Crisis
Debt problems have always accompanied international financial transactions. But the decades since the 1960s have witnessed an explosion in international debt. International debt mushroomed into crisis proportions in the 1980s, forcing many debtor countries throughout Latin America and the Third World into near bankruptcy. The crisis not only has ground global economic growth to a virtual standstill, but the threat of major defaults among Latin American countries has rocked the international financial community and could spell disaster for lending institutions and creditor countries.
The growing extent of the problem is reflected in a number of statistics. In 1982, for example, the total of international bonds unpaid was $259 billion; by 1991, $1.6 trillion in international bonds were outstanding. As recently as 1986, the global stock of principal derives such as options, futures, and exchanges involving interest rates and/or currencies, was $1.1 trillion; in 1991, it was $6.9 trillion. Turnover in foreign exchange, including derivatives, is currently estimated at $900 billion every single day; currency trading has grown by a third since 1989 when a major bank survey indicated net daily turnover of approximately $650 billion--a figure that was double the previous estimate for 1986.
Between 1986 and 1990, the flow of foreign direct investment out of the United States, Japan, West Germany, France and Great Britain increased from $61 billion per year to $156 billion per year, an annual growth rate o...