Proposal preview

The Debt Crisis of the 1980s, Banking, and the Private Sector in Latin America

This session aims to take advantage of the growing availability of archives, including those of the IMF and banks in Europe, the United States, and Latin America, which permit a reinterpretation of the debt crisis of the 1980s. The papers will emphasise the behaviour that led to it, the attempts made to manage the crisis, and the outcomes.

Organizer(s)

  • Rory M Miller University of Liverpool rory@liverpool.ac.uk United Kingdom
  • Martín Monsalve Universidad del Pacífico, Lima monsalve_ma@up.edu.pe Peru
  • Edoardo Altamura Lund University edoardo.altamura@unige.ch Sweden

Session members

  • Sebastián Alvarez, University of Geneva
  • Raúl García Heras, Universidad de Buenos Aires
  • Claudia Kedar, Hebrew University, Jerusalem
  • Simone Selva, L'Orientale Universita di Napoli, Italy
  • Youssef Cassis, European University Institute
  • Edoardo Altamura, Lund University
  • Martín Monsalve, Universidad del Pacífico

Discussant(s)

  • Rory M Miller rory@liverpool.ac.uk

Papers

Panel abstract

This session aims to take advantage of the growing availability of archives, including those of the IMF and banks in Europe, the United States, and Latin America, which permit a reinterpretation of the Latin American debt crisis of the 1980s. The papers will emphasise the behaviour that led to it, the attempts made to manage the crisis, and the outcomes.

1st half

Debt and Recession - The Latin American Debtor Countries, their Economies, and the Role of US Banking from the Second Energy Crisis to the late 1980s

Simone Selva

This contribution questions widely-accepted views about the retrenchment of US and Western banking after private and public-sector debt in Latin America during peaked in the 1970s. By focusing on some significant national case studies (Mexico, Brazil, Argentina and Chile), it pinpoints the increased dependence of Latin America's largest debtor nations on western financial institutions, and in particular on US banks. We contextualise this against the backdrop of macroeconomic transformations within the US and international economies, and the dynamics of international financial markets resulting from the second oil crisis and further developments in the early 1980s, as well as changes in US foreign policy towards authoritarian regimes. The paper establishes a linkage between the opening of these economies to foreign direct investments and investments in national equity and stock markets, and the trajectory that these Central and Latin American economies experienced between the late 1970s and the late 1980s.

This contribution questions widely-accepted views about the retrenchment of US and Western banking after private and public-sector debt in Latin America during peaked in the 1970s. By focusing on some significant national case studies (Mexico, Brazil, Argentina and Chile), it pinpoints the increased dependence of Latin America's largest debtor nations on western financial institutions, and in particular on US banks. We contextualise this against the backdrop of macroeconomic transformations within the US and international economies, and the dynamics of international financial markets resulting from the second oil crisis and further developments in the early 1980s, as well as changes in US foreign policy towards authoritarian regimes. The paper establishes a linkage between the opening of these economies to foreign direct investments and investments in national equity and stock markets, and the trajectory that these Central and Latin American economies experienced between the late 1970s and the late 1980s.

Populism and International Finance - The Experience of Peronist Argentina, 1973-76

Raúl García Heras

This paper examines Argentina’s international financial relations during a populist government that held power between 1973 and 1976. This coincided with the collapsing Bretton Woods regime, dominated by multilateral and bilateral sources of external financing, and the consolidation of unregulated private banking finance that prevailed until the onset of the debt crisis. It preceded the neoliberal program conducted by Martínez de Hoz as Minister of the Economy during the military dictatorship. The discussion draws on a wide range of foreign and national private, multilateral and public records. It refines earlier scholarly analyses which have argued that this interlude was a frustrated effort to adapt to the globalization of international finance and break with the dependency on multilateral financial institutions which dated from the late 1950s. However, the populist failure set the stage for the controversial restoration of Argentina’s international financial relations during the early years of the military dictatorship.

This paper examines Argentina’s international financial relations during a populist government that held power between 1973 and 1976. This coincided with the collapsing Bretton Woods regime, dominated by multilateral and bilateral sources of external financing, and the consolidation of unregulated private banking finance that prevailed until the onset of the debt crisis. It preceded the neoliberal program conducted by Martínez de Hoz as Minister of the Economy during the military dictatorship. The discussion draws on a wide range of foreign and national private, multilateral and public records. It refines earlier scholarly analyses which have argued that this interlude was a frustrated effort to adapt to the globalization of international finance and break with the dependency on multilateral financial institutions which dated from the late 1950s. However, the populist failure set the stage for the controversial restoration of Argentina’s international financial relations during the early years of the military dictatorship.

The IMF, the World Bank and the Transformation of Argentina’s Economy, 1976-81

Claudia Kedar

This paper examines Argentina’s international financial relations during a populist government that held power between 1973 and 1976. This coincided with the collapsing Bretton Woods regime, dominated by multilateral and bilateral sources of external financing, and the consolidation of unregulated private banking finance that prevailed until the onset of the debt crisis. It preceded the neoliberal program conducted by Martínez de Hoz as Minister of the Economy during the military dictatorship. The discussion draws on a wide range of foreign and national private, multilateral and public records. It refines earlier scholarly analyses which have argued that this interlude was a frustrated effort to adapt to the globalization of international finance and break with the dependency on multilateral financial institutions which dated from the late 1950s. However, the populist failure set the stage for the controversial restoration of Argentina’s international financial relations during the early years of the military dictatorship.

This paper examines Argentina’s international financial relations during a populist government that held power between 1973 and 1976. This coincided with the collapsing Bretton Woods regime, dominated by multilateral and bilateral sources of external financing, and the consolidation of unregulated private banking finance that prevailed until the onset of the debt crisis. It preceded the neoliberal program conducted by Martínez de Hoz as Minister of the Economy during the military dictatorship. The discussion draws on a wide range of foreign and national private, multilateral and public records. It refines earlier scholarly analyses which have argued that this interlude was a frustrated effort to adapt to the globalization of international finance and break with the dependency on multilateral financial institutions which dated from the late 1950s. However, the populist failure set the stage for the controversial restoration of Argentina’s international financial relations during the early years of the military dictatorship.

2nd half

Brazilian Banks, International Finance and the Debt Crisis of 1982

Sebastián Álvarez

The rise of foreign banking and increasing integration of national financial systems are salient features of world capital markets in the second half of the twentieth century. After the end of Bretton Woods and the oil shock of 1973 large amounts of petrodollars streamed into the international financial system, and commercial banks became increasingly involved with international finance. Despite extensive study of US and European banks, the international expansion of banks in developing countries has received much less attention. This paper concentrates on the international expansion of Brazilian banks during the decade leading to the debt crisis, focusing particularly on the risks and vulnerabilities they created for the domestic financial system. It considers the factors that drove their involvement with foreign finance and the ways in which they intermediated foreign capital with domestic borrowers. It thus provides new insights on the sources of domestic financial and macroeconomic fragility after 1982.

The rise of foreign banking and increasing integration of national financial systems are salient features of world capital markets in the second half of the twentieth century. After the end of Bretton Woods and the oil shock of 1973 large amounts of petrodollars streamed into the international financial system, and commercial banks became increasingly involved with international finance. Despite extensive study of US and European banks, the international expansion of banks in developing countries has received much less attention. This paper concentrates on the international expansion of Brazilian banks during the decade leading to the debt crisis, focusing particularly on the risks and vulnerabilities they created for the domestic financial system. It considers the factors that drove their involvement with foreign finance and the ways in which they intermediated foreign capital with domestic borrowers. It thus provides new insights on the sources of domestic financial and macroeconomic fragility after 1982.

Management under Economic and Political Stress - Peruvian Business during the crisis of the 1970s and 1980s

Martín Monsalve

This paper analyses a series of interviews of Peruvian business leaders undertaken as part of the Creating Emerging Markets project at Harvard Business School, together with others that the author has conducted with CEOs and managers in the Peruvian financial and industrial sectors. The central research question is ‘How did the economic crisis affect the management and strategies of Peruvian companies? It is important to point out that in the case of Peru the crisis was not only economic, but also a political one which involved the transition from a military dictatorship to a weak democracy, which was then threatened by the rebellion of a radical Maoist movement, Sendero Luminoso. The information obtained in the interviews will be contrasted with other primary sources such as company reports, financial reports, and the specialist economic media.

This paper analyses a series of interviews of Peruvian business leaders undertaken as part of the Creating Emerging Markets project at Harvard Business School, together with others that the author has conducted with CEOs and managers in the Peruvian financial and industrial sectors. The central research question is ‘How did the economic crisis affect the management and strategies of Peruvian companies? It is important to point out that in the case of Peru the crisis was not only economic, but also a political one which involved the transition from a military dictatorship to a weak democracy, which was then threatened by the rebellion of a radical Maoist movement, Sendero Luminoso. The information obtained in the interviews will be contrasted with other primary sources such as company reports, financial reports, and the specialist economic media.

There is No Place Like Home - Lloyds Bank’s Experience from Internationalization to the Latin American Debt Crisis and Localization.docx

C. Edoardo Altamura, Youssef Cassis

In 1998 The Economist acclaimed Lloyds Bank as the ‘most valuable’ in the world, calling it a ‘money machine’, even though Lloyds had been one of the hardest-hit casualties of the 1982 crisis when over 25 countries defaulted on sovereign debts. Having expanded excessively in the developing world during the 1970s, it took Lloyds over a decade even to return to profitability, a result due to a complete overhaul of its business model and management. Under Brian Pitman’s chairmanship, it withdrew from international activities and investment banking. This paper analyzes Lloyds’ transformation from a domestic bank to an international powerhouse in the 1970s and then the reverse process, which restored profitability. Using recently disclosed archival records, the paper sheds new light on several theoretically compelling questions: how risk is calculated; how established institutions take innovative decisions during a crisis; and the role of managers in shaping and changing corporate culture.

In 1998 The Economist acclaimed Lloyds Bank as the ‘most valuable’ in the world, calling it a ‘money machine’, even though Lloyds had been one of the hardest-hit casualties of the 1982 crisis when over 25 countries defaulted on sovereign debts. Having expanded excessively in the developing world during the 1970s, it took Lloyds over a decade even to return to profitability, a result due to a complete overhaul of its business model and management. Under Brian Pitman’s chairmanship, it withdrew from international activities and investment banking. This paper analyzes Lloyds’ transformation from a domestic bank to an international powerhouse in the 1970s and then the reverse process, which restored profitability. Using recently disclosed archival records, the paper sheds new light on several theoretically compelling questions: how risk is calculated; how established institutions take innovative decisions during a crisis; and the role of managers in shaping and changing corporate culture.