Krogh, Peter F. (Peter Frederic)
Canavan, Terence C.
Examines the causes and potential consequences of the international lending crisis.
In the early 1980s a global recession drove many nations in Eastern Europe and South America to the verge of insolvency, sparking fears of a broad-scale financial collapse. Poland, East Germany, Argentina and Brazil all owed billions of dollars to western banks, and Mexico was threatening to default on $28 billion worth of foreign debt unless it received new loans to pay off the old ones. Just five years before, oil had been discovered in Mexico and American banks had rushed to invest heavily in the region. However, in 1981 oil prices dropped and Mexico's revenues fell by 25%. Soon the Mexican government was diverting money used to pay back loans to prop up the nation's faltering economy, and within months Mexico appeared to be at the brink of bankruptcy. Some American banks had loaned as much of 60% of their equity to Mexico, meaning that a Mexican default would have devastating and widespread financial consequences in the banking industry. While the banks maintained that their investments were sound, critics warned of an economic collapse, resulting in calls for a rescue package for banks and country-borrowers alike. In this episode, Terence Canavan, Executive Vice President of Chemical Bank, and Richard Dale, a financial analyst and guest scholar at the Brookings Institution, discuss the factors that led to the international banking crisis, as well as the potential consequences of a sovereign state defaulting on its loans.
Banks and banking, International; International finance; Loans, Foreign; Loans, American -- Developing countries; Debts, External -- Developing countries; Banks and banking -- Government policy -- United States; Mexico -- Economic conditions -- 1982-; Aid and Development; International Economics, Trade and Business; International Banking; Foreign Loans; Bank Bailout; Mexico National Debt;
International; Mexico, Central America and the Caribbean; Europe;
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