The history usually repeats; as nobody learns the lessons it gives. The world history accounts for more than 10 world financial crises. In 1970th and 1980th arose new wave of crisis. After all, the world debt snowballed from $130 billion in 1973 to some $612 billion in 1982 (Source 2).
There are a lot of versions and reasons why this crisis has occurred. In the 1970th most developing countries discovered that they were unable to pay the existed loans and the step they had taken was new loans in order to liquidate maturing loans, in some cases, the amount of new loans was just enough for covering of the interests. At that time many economists world ignored signals of an imminent debt crisis.
In 1982 risk-management was not as well developed as nowadays that is why it was difficult for bankers to implement necessary monetary tools, for instance, moratorium on foreign currency debt.
The factors that have facilitated the crises coming are as follows: increasing costs for the military needs constantly increased the national debt. The debt crisis could also be explained by decline in the world economic environment caused by the oil price rise that began to rise in 1971; after the oil price had dropped from $1.50 a barrel in 1960 to $1.30 a barrel in 1970 (Source 2).
The debt crisis exploded in August of 1982 when Mexico announced that it was unable to pay to its international creditors. It worth mentioning that in the 1970s great amount of loans were granted to the Third World, due to the increasingly floating interest rates the debt had become too large to offset.
The financial problems of the world in 1982 were supplemented with the recession. The crises led to the necessity to create plans for building up the economic growth. That is why the Baker Plan “Growth, the Key to Breaking the Debt Crisis” and later in U.S. Treasury Secretary James Baker improved the strategy for dealing with Third World debt.
The changes the crisis has brought are as follows: today’s countries have more moderate debt, direct investments in the most reliable securities, their diversification. Past approaches such as rescheduling long-term bank claims, so common in the debt crisis and 1980s, have lost much of their relevance, because of the great changes in capital markets (Source 5). In 1988 rescheduling of bank claims would have eased Latin America’s cash flow by 25 percent of imports, but today it would ease the flow by roughly three percent. In modern times, equity flows account for more than half of total net flows to emerging markets; they involve mutual funds, insurance companies, multinational corporations, and pension funds. All these changes led to the better capital mobility.
To my mind, the recent 2008 crisis was not absolutely completed and not all the problems were solved. For instance in Eastern Europe the crisis has begun much later. It is possible to say that 2012 and 2013 years are very unpredictable due to unstable political situation in Russia, economic situation …
Posted by: Ophelia Klaus