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Latin america debt crisis short essays
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How exchange rate policies and systems characterize the countries of South America: Exchange rate plays a key role in development of South American economy. The exchange rate has enormously influenced the economy of these regions particularly from 1960’s when the economy was mostly characterized by import substitution, and 1970’s when foreign debt was significantly increased. Exchange rate has been very instrumental in formulation of government policies in these regions. In fact, “many analysts regard exchange rate policy as a major determinant of other economical outcomes, such as adjustment to the oil shocks of the 1970’s and the debt the debt crisis of the 1980’s” (Frieden & Ernesto, 2010) Generally speaking, there were four principal categories of exchange rate regimes in Latin America as discussed by Kiguel Alberto: (i) Countries with fixed exchange rates where devaluations are a rare event (e.g. Venezuela till 1982), (ii) countries with fixed exchange rates but with periodic devaluations (e.g. Chile, Colombia, Peru and Uruguay in the fifties and sixties), (iii) countries with a pronounced devolution(the famous Tablitas in the late seventies in the southern cone and the exchange rate rule in Mexico more recently), (iv) countries with a passive crawling peg (Brazil between 1968 and 1986,Colombia since 1967), (v)countries that for a short span adopted a flexible exchange rate (e.g. Venezuela in 1989 and Peru in 1990). (1992, p. 6) The regimes have varied overtime, moving from fixed exchange rates (with periodic devaluations) to more flexible exchange rates (where crawling peg was adopted) and later, max-devaluations. More recently, the exchange rate is creeping back to a more stable outlook. In accordance with exchange rate... ... middle of paper ... ...cal instability could continue causing harm to the economy. References 1. Darrat, F. Elkhal, K. & Hakim, S. (2000). On The Integration of Emerging Stock Market In Middle East.Journal of Economics Development. 25, 2-17. 2. Gellati, M. A wavelet analysis of MENA stock markets. JOURNAL OF RESEARCH WORKING PAPERS 596, 4-9. 3. Frieden,L & Ernesto, P. 2010. (2009). Preliminary Overview of the Economies of Latin America and the Caribbean 2008. United Nations Publications. 4. Hall, M. (2005). Exchange rate crises in developing countries: the political role of the banking sector. Ashgate Publishing, Ltd 5. Khan, M & Reinhart, C. (1995). Capital flows in the APEC region. Occasional paper (International Monetary Fund), 122, 803-809. 6. Kiguel, A. (1992). Policy research working papers. Policy research working papers: Macroeconomic adjustment and growth, 880, 78-79.
Meade (1988) stated that, because of the exchange rate rapid decline so much since early 1985 in the US and because the monthly trade statistics has been examined so thoroughly for any sign of a turnaround in the nominal trade balance, the J-curve phenomenon has received much attention. The statistics often implies that the negative effect of depreciation is reflected in the J-curve as the continuation of nominal trade deficit. Between early 1985 and 1988, the exchange value of US dollar in terms of currencies of other countries, registered a sizeable depreciation. The deficits recorded in the trade account were mirrored in the current account deficit. Meade depicted the significance of the exchange rate to the trade account as well as current account through the use of the J-curve highlighting that the phenomenon is used as a long-term goal to curb the deficits, however in the short-run, depreciation will increase the nominal deficits accumulated by a country.
Mignolo, W. D. (2005). The Idea of Latin America (pp. 1-94). Malden, MA: Blackwell Publishing.
This paper argues that the Mexican peso crisis of December 20 should have been expected and foreseeable. In the year preceding the crisis, there were several indicators suggesting that the Mexican economy and peso were already under extreme pressure. The economy bubble was ballooning to burst so much so that it was simply a crisis waiting to happen.
Mexico’s economy was very unstable and unfair in comparison to the U.S. and Canada’s economic standing. But even though Mexico’s economy was bad, Canada and the U.S. ignored that Mexico wasn’t in any condition to enter as an equal partner (Henderson 121). The overvalued peso in Mexico also caused many problems economically. Since the peso was overvalued for many years, when the peso did float in 1994, it lost 20 percent of its value (Henderson 123). Due to this drastic change to Mexico’s currency, Mexicans were unable to make their payments nor buy goods because the prices rose drastically, which caused many businesses to shut down or lay off their workers (Henderson 123). This was the start of the many problems yet to come because these countries would be trading unequally with Mexico since Mexico didn’t have much to give besides workers who would work for cheap
Benjamin Keen, Keith Haynes. A History of Latin America Seventh Edition. Houghton Mifflin Company. Boston New York, 2004.
In recent years, the Gross Domestic Product/capita (PPP) in Paraguay has increased significantly in the last decade, with $6,136/capita around $40.9 billion. Paraguay has been one of the fastest growing economies in Latin America, mostly due to an increase in exports of agricultural produce. According to Banco Central del Paraguay, reported “From 2008 until 2013, Paraguay GDP Growth Rate averaged 1.3 Percent reaching an all tim...
Mignolo, W. D. (2005). The Idea of Latin America (pp. 1-94). Malden, MA: Blackwell Publishing.
The political power has had enormous affect to the Latin American economy. Most of the countries in the Latin America remained colonies for over a long period of time; therefore, they were controlled by the Europeans power. These colonies never thought of development of the Latin American countries, rather all wealth from the colonies was taken out to the home country. This situation is similar to other colonized continents such as Asia and Africa. Almost every colonized country in the world is still in the process of development. These countries were never benefited economically from the colonizers. Therefore, the historic imperialism is still harming countries in the Latin America as well as they are still underdeveloped. According to Marxist theory “The colonies were used as places to invest surplus capital and sell goods from the colonizing countries and as sources of cheap raw materials and cheap labor.”(P165) Therefore, the investors will always get high benefits from their investment; however, the raw materials will get low prices for it. Hence, still Latin American countries face various problems due to the excessive use of natural resources and due to late from the Europeans
The main purpose of this paper is to study and analyze the effects that the U.S. Free Trade Agreement have in Colombia’s developing economy by demonstrating the effects in Colombia’s GDP after the agreement, the effects in farmers, illegal drugs, and in the internal market share...
[14]. G. William Schwert, 2002. Anomalies and market efficient, NBER Working paper No. 9277, Oct 2002. JEL No. G14, G12, G34, G32
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
Dornubusch, Rudiger. Macroeconomics. USA. McGraw-Hill Publishing Company. 1990.
Radelet, Steven, and Jeffrey D. Sachs. “Currency Crises.” The National Bureau of Economic Research. National Bureau of Economic Research, Jan. 2000. Web. 10 Dec. 2013. .
Dollarization is the process in which nations “replace their domestic currencies [with foreign legal tender] …to obtain economic growth and stability” (Rivera-Solis 330). The US dollar is the most common choice of exchange in this practice, though the adoption of other first world states currencies may be entertained as well. Though its affects are not instant, US dollarization has brought many gradual benefits to the economic statuses of several countries. There are two types of dollarization: official and unofficial. In the process of official dollarization, a state gives complete monetary control to a foreign nation, ceding its right to both create a central bank and issue a domestic form of currency. Where as a nation loses its sovereignty
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.