Q. The 1980s are considered as the "lost decade" of Latin American growth. Explain why?
Answer: Whilst the Great Depression made it hard for developing countries to make payments on their foreign loans the great recession of the 1980s as well sparked a crisis over developing country debt. The decrease in the industrial countries' aggregate demand had a direct negative impact on the developing countries. The problem was assembly worse by the dollar's sharp appreciation in the foreign exchange market which increases the real value of the dollar debt burden substantially. The crisis started in August 1982 when Mexico announced that its central bank had expire of foreign reserves and that it could no longer meet payments on its $80 billion in foreign debt. Seeing potential resemblance between Mexico and other large Latin American debtors such as Brazil, Argentina, and Chile, banks in the industrial countries the largest private lenders to Latin America scrambled to decrease their risks by cutting off new credits and demanding repayment on earlier loans. The consequence was a widespread inability of developing countries to meet preceding debt obligations and a rapid move to the edge of a generalized default. Latin America was maybe hardest hit but thus was soviet bloc countries like Poland that had borrowed from the European banks. However, beside the end of 1986 more than 40 countries had encountered severe financing problems. Growth had deliberated sharply in much of the developing countries because they have to stop producing in order to pay the debtors.