No Latin American Debt Crisis

kernals12

Banned
It's a rather tragic tale. In the 1970s, Latin American countries borrowed heavily in dollar denominated bonds, accumulating large debts. In the 80s, interest rates shot up as Western governments tried to bring inflation under control. This was catastrophic for Latin America. There were few nations in that region that didn't default at one point or another. The result was bank failures, mass unemployment, and hyperinflation. They had no choice but to go to the IMF for bailouts. In turn, the IMF, wanting to get its money back, ordered Structural Adjustment Programs that called for massive austerity, making everything worse.

This crisis led to a reversal of the economic progress made by Latin America in the 70s. It was an important contributor to the surge in illegal immigration to the US. It swept Hugo Chavez to power in Venezuela. It forced desperate people into the drug trade. It might have even helped keep Castro in power by allowing him to point to all the devastation surrounding his island

Let us imagine that the US chose to fight inflation with Abba Lerner's Wage Inflation Permit Plan, which I outlined here. Latin America might have made enormous progress and be a richer, less violent place today.
 

kernals12

Banned
It is remarkable how much trouble was caused by our crazy inflation expectations in the 70s. It's a good thing that we've tamed it since the 90s.
 
A good start is to absolutely crush the 1964 coup in Brazil, as while the problem with debt began before under JK government, It got out of Control due the dictatorship, i'm out of home now so later I write a better explanation.
 

kernals12

Banned
A good start is to absolutely crush the 1964 coup in Brazil, as while the problem with debt began before under JK government, It got out of Control due the dictatorship, i'm out of home now so later I write a better explanation.
A. The debt was not devastating until interest rates rose. It paid for a massive economic boom, one which could've propelled Brazil to developed country status had it continued past 1980.
B. The crisis didn't just hit Brazil, it hit everyone.
 
A. The debt was not devastating until interest rates rose. It paid for a massive economic boom, one which could've propelled Brazil to developed country status had it continued past 1980.
B. The crisis didn't just hit Brazil, it hit everyone.

1- I'm not home to give a larger answer now, but the while survival of the dictatorship Was bases on debt, including the repression. And there Was a responsible amount of debt that the government could take before the coup that Was lifted when you know, no congress.
2- For different reasons with some similarities.
 
A. The debt was not devastating until interest rates rose. It paid for a massive economic boom, one which could've propelled Brazil to developed country status had it continued past 1980.
B. The crisis didn't just hit Brazil, it hit everyone.

Very well,
The crisis hit everyone but the contexts are different, Argentina and Brazil were industrial nations, others were agrarian and in many cases had a monoculture like coffe, so I cannot talk about all of them, especially since I only have a base on Brazil, but I think that this is enought to explain why there is a difference between the reasons of the many governments crash.

audivi1.gif

This is the growth of the brazilian debt. From the 1930 revolution until 1964 we had a group of populists that can be called in a very generic way as "National developmentalists", basically Vargas, Juscelino Kubitschek and João Goulart, the three presidents with almost the same mindset. The three kept their former project's going with small differences (Vargas going to build the base industry, JK to consolidate the national bourgeisie and Jango to help to increase the living standart and help the poor). This was stopped brutally by the 1964 coup, that brought the old elite that had lost ower in 1930 to power along with the brazilian right wing liberals and some sectors of the military aligned to a clique called "Superior war school". Juscelino Kubitschek ruled from 1955-60 and kept a five year plan increasing the debt of Brazil to consolidate the industrialization started by Vargas and to consolidate our consumer goods, for the brazilian person to have a brazilian car and a brazilian TV, and thus the debt grow. He planned to come back in 1965 to make a more responsible plan, but he became one of the first victims of the dictatorship being exiled. Now we get into the dictatorship, and to be more precise, Golbery do Couto e Silva. The coup had two main factions, the Sorbonne, more connected with the farmers of the old republic, more technocratic and more right wing liberal, Pinochetists is you want. They used the economist Roberto Campos to draft their economical plan, the PAEG, basically a plan of austerity to control the rampant inflation of the populist era, thus decreasing the dissent post coup, and also to control the government debt. I personally desagree with the plan but it was a good plan, just too right wing liberal and anti industrialization, Roberto Campos became a respected right wing liberal and his legacy lives on... then 1968 happened.

The spread of the 1968 protests to Brazil led to the March of the 100 thousand, that is considered by many the turning point of the dictatorship (example), as we were on a right wing dictatorship built on macarthism and they saw people waving flags of the communist party on the demonstration, thus provocking the Sorbornne to lose their hold and to be replaced by the Hardline faction of the army with the dictator Costa e Silva. now the Golbery that I cited above enters the scene: He built two main doctrines used by the dictatorship, the first was a diplomatic one that placed Brazil as a pawn of the USA in South america, according to it the USA should be the hegemon from the top of Nunavut to southern Patagonia and Brazil as a loyal ally should be the southern little neighbour to help the consolidation of this position, that is why we intervened on the 1968 civil war on the DOminican republic, to give a example. The debt problem comes from the second one, on how to apply the repression and how to increase the popularity of the junta.

Recent studies showed that the junta wasn't as popular as people tough, as Jango had 70% approval before the coup. The austerity plan PAEG and the march of the 100 thousand made this even more possible, so he created a doctrine based on the concept that the political opposition should be eliminated along with economical growth, as a car with his accelerator: When the economy is growing, your popularity increases too, so you must accelerate the repression, "The people will not care if communists are being shot if they can afford a VW beetle", and so they embarked on the "Brazilian Miracle". I use "Miracle" under quotations because the therm is falling out of use because a miracle is when the economy get a 10% growth for 10 years, and the dictatorship didn't came not even near that except for 1973 when they grew 14%, but a explanation for that comes later. They began to increase the repression to levels unseen in Brazilian history, thus creating a period known as "Years of steel" from 1968 when Costa e Silva became the dictator until 1974 when his sucessor, Médici, left the power. The habeas corpus was suspended, any kind of dissent was crushed, politicians could be replaced at any time and have their personal beings confiscated, people on the house of the thousands dissapeared, of which 424 were confirmed executed. At the same time the GDP grew and we won the 1970 world cup, that is why the dictatorship is so controversial and you got figures like Bolsonaro, for the average citizen who didn't cared about politics he was just getting wealthier while a minority was being crushed to pieces, and so on this field the Golbery theory worked. The growth however didn't came through a healthy and well planned economic plan, instead by two plans, the first and the second National Development Plan led by the right wing statist Delfim Neto, who openly said that he didn't knew economics at the time he got appointed. He made the growth by contrating the massive loans you can see starting in the mid-late 60s and investing on infraestruture, stadiums, highways, dams, anything, while a lot of the money was of course taken by corruption to fill the junta's pockets. While many people (like my father) commemorated this artificial boom, many already knew that this wasn't sustainable:

questao19.enem2015.jpg

This 1974 comic shows a family, the wife reads: "Only this year three billion dollars entered Brazil, the payment begins in ten years." the husband looks at his son and says "Poor..."

They were digging their own graves and the reality came with the oil crash, when the europeans, americans and the IMF stopped pumping money on Brazil the junta collapsed, the Hardline was replaed by the Sorbornne again and on the next ten years under a horrible recession the junta democratized.

So according to this, had the coup not happened or even better, got crushed, Brazil could have suffered from the Debt crisis, but not as bad as OTL.

What do you think?
 
It's a rather tragic tale. In the 1970s, Latin American countries borrowed heavily in dollar denominated bonds, accumulating large debts. In the 80s, interest rates shot up as Western governments tried to bring inflation under control. This was catastrophic for Latin America. There were few nations in that region that didn't default at one point or another. The result was bank failures, mass unemployment, and hyperinflation. They had no choice but to go to the IMF for bailouts. In turn, the IMF, wanting to get its money back, ordered Structural Adjustment Programs that called for massive austerity, making everything worse.

This crisis led to a reversal of the economic progress made by Latin America in the 70s. It was an important contributor to the surge in illegal immigration to the US. It swept Hugo Chavez to power in Venezuela. It forced desperate people into the drug trade. It might have even helped keep Castro in power by allowing him to point to all the devastation surrounding his island

Let us imagine that the US chose to fight inflation with Abba Lerner's Wage Inflation Permit Plan, which I outlined here. Latin America might have made enormous progress and be a richer, less violent place today.
Things people forgot...i don't think is the only thing, our Import substitution industrialization FAILED And that was something balloned that debt, the idea was we could repaid it with the future industry taxes but the underperfoming and that the ISI worked on East Asia but not Latam killed us
 

kernals12

Banned
Very well,
The crisis hit everyone but the contexts are different, Argentina and Brazil were industrial nations, others were agrarian and in many cases had a monoculture like coffe, so I cannot talk about all of them, especially since I only have a base on Brazil, but I think that this is enought to explain why there is a difference between the reasons of the many governments crash.

audivi1.gif

This is the growth of the brazilian debt. From the 1930 revolution until 1964 we had a group of populists that can be called in a very generic way as "National developmentalists", basically Vargas, Juscelino Kubitschek and João Goulart, the three presidents with almost the same mindset. The three kept their former project's going with small differences (Vargas going to build the base industry, JK to consolidate the national bourgeisie and Jango to help to increase the living standart and help the poor). This was stopped brutally by the 1964 coup, that brought the old elite that had lost ower in 1930 to power along with the brazilian right wing liberals and some sectors of the military aligned to a clique called "Superior war school". Juscelino Kubitschek ruled from 1955-60 and kept a five year plan increasing the debt of Brazil to consolidate the industrialization started by Vargas and to consolidate our consumer goods, for the brazilian person to have a brazilian car and a brazilian TV, and thus the debt grow. He planned to come back in 1965 to make a more responsible plan, but he became one of the first victims of the dictatorship being exiled. Now we get into the dictatorship, and to be more precise, Golbery do Couto e Silva. The coup had two main factions, the Sorbonne, more connected with the farmers of the old republic, more technocratic and more right wing liberal, Pinochetists is you want. They used the economist Roberto Campos to draft their economical plan, the PAEG, basically a plan of austerity to control the rampant inflation of the populist era, thus decreasing the dissent post coup, and also to control the government debt. I personally desagree with the plan but it was a good plan, just too right wing liberal and anti industrialization, Roberto Campos became a respected right wing liberal and his legacy lives on... then 1968 happened.

The spread of the 1968 protests to Brazil led to the March of the 100 thousand, that is considered by many the turning point of the dictatorship (example), as we were on a right wing dictatorship built on macarthism and they saw people waving flags of the communist party on the demonstration, thus provocking the Sorbornne to lose their hold and to be replaced by the Hardline faction of the army with the dictator Costa e Silva. now the Golbery that I cited above enters the scene: He built two main doctrines used by the dictatorship, the first was a diplomatic one that placed Brazil as a pawn of the USA in South america, according to it the USA should be the hegemon from the top of Nunavut to southern Patagonia and Brazil as a loyal ally should be the southern little neighbour to help the consolidation of this position, that is why we intervened on the 1968 civil war on the DOminican republic, to give a example. The debt problem comes from the second one, on how to apply the repression and how to increase the popularity of the junta.

Recent studies showed that the junta wasn't as popular as people tough, as Jango had 70% approval before the coup. The austerity plan PAEG and the march of the 100 thousand made this even more possible, so he created a doctrine based on the concept that the political opposition should be eliminated along with economical growth, as a car with his accelerator: When the economy is growing, your popularity increases too, so you must accelerate the repression, "The people will not care if communists are being shot if they can afford a VW beetle", and so they embarked on the "Brazilian Miracle". I use "Miracle" under quotations because the therm is falling out of use because a miracle is when the economy get a 10% growth for 10 years, and the dictatorship didn't came not even near that except for 1973 when they grew 14%, but a explanation for that comes later. They began to increase the repression to levels unseen in Brazilian history, thus creating a period known as "Years of steel" from 1968 when Costa e Silva became the dictator until 1974 when his sucessor, Médici, left the power. The habeas corpus was suspended, any kind of dissent was crushed, politicians could be replaced at any time and have their personal beings confiscated, people on the house of the thousands dissapeared, of which 424 were confirmed executed. At the same time the GDP grew and we won the 1970 world cup, that is why the dictatorship is so controversial and you got figures like Bolsonaro, for the average citizen who didn't cared about politics he was just getting wealthier while a minority was being crushed to pieces, and so on this field the Golbery theory worked. The growth however didn't came through a healthy and well planned economic plan, instead by two plans, the first and the second National Development Plan led by the right wing statist Delfim Neto, who openly said that he didn't knew economics at the time he got appointed. He made the growth by contrating the massive loans you can see starting in the mid-late 60s and investing on infraestruture, stadiums, highways, dams, anything, while a lot of the money was of course taken by corruption to fill the junta's pockets. While many people (like my father) commemorated this artificial boom, many already knew that this wasn't sustainable:

questao19.enem2015.jpg

This 1974 comic shows a family, the wife reads: "Only this year three billion dollars entered Brazil, the payment begins in ten years." the husband looks at his son and says "Poor..."

They were digging their own graves and the reality came with the oil crash, when the europeans, americans and the IMF stopped pumping money on Brazil the junta collapsed, the Hardline was replaed by the Sorbornne again and on the next ten years under a horrible recession the junta democratized.

So according to this, had the coup not happened or even better, got crushed, Brazil could have suffered from the Debt crisis, but not as bad as OTL.

What do you think?
Your chart shows that even with the Junta's spending binge, Brazil's debt remained at less than 10% of GDP. The problem came with the steep rise in interest rates in 1980 thanks to the tyranny of compounding. I see no reason why the boom couldn't have continued if the US found another way to keep inflation under control. The other big mistake was issuing the bonds in dollars, which makes default the only option if you can't repay. If they had been issued in reals, the printing press would've been left as an option.

And if the coup hadn't happened, someone would still have been tempted to borrow as your chart shows that Brazil was basically debt-free by 1964. And borrowing money is not something to be ashamed of. There's no denying that, even with corruption, the money went toward a lot of productive investment.
 
Your chart shows that even with the Junta's spending binge, Brazil's debt remained at less than 10% of GDP. The problem came with the steep rise in interest rates in 1980 thanks to the tyranny of compounding. I see no reason why the boom couldn't have continued if the US found another way to keep inflation under control.

Had the US kept the interest rate down, it would just delay the inevitable. It could delay the end of the junta and end with more people dead, as as the debt would continue to grow until the foreigners asked for the money back, something the junta wasn't prepared to pay.

And if the coup hadn't happened, someone would still have been tempted to borrow as your chart shows that Brazil was basically debt-free by 1964. And borrowing money is not something to be ashamed of. There's no denying that, even with corruption, the money went toward a lot of productive investment.

Yes, but not someone like Delfim Neto, the National Developmentalist project would keep going on and on and when the interest rates rise Brazil would be better prepared to weather the crisis.
 
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