Debt Crises and Debt Relief

In the 1970s, banks flush with deposits from oil exporters lent heavily to developing countries, especially in Latin America, at variable interest rates. When the US Federal Reserve raised rates sharply to fight inflation and commodity prices fell, repayment costs soared. In August 1982 Mexico announced it could not meet its payments, and the crisis spread across the region. The 1980s became a 'lost decade' for Latin America, with falling incomes and austerity under IMF programs.

The Brady Plan of 1989 finally allowed debts to be reduced and converted into tradable bonds. In Africa, many low-income countries carried debts they could not repay, often to governments and international lenders. Campaigns such as Jubilee 2000 pushed for cancellation, and the Heavily Indebted Poor Countries initiative of 1996 and the Multilateral Debt Relief Initiative of 2005 wrote off large debts in exchange for poverty-reduction commitments. Debates continue over how to prevent new debt crises and share losses fairly between creditors and borrowers.