The international debt crisis has sparked much heated discussion and often been at the forefront of economic thought since its emergence onto the world stage in August 1982. In the seven years since its appearance the proposed solutions still seem far from adequate. The failure of the creditors, the debtors and the international community to find a solution to the crisis has added fuel to the debate. Granted that the collapse of the world financial system has been averted, a long-term answer has yet to be discovered. The obvious inadequacy of the debt management techniques thus far employed has generated much discussion. This global interest in the developing country debt crisis has for the most part centred on the Latin American region and in particular the largest of the Latin American states and Mexico.
There are several reasons for this concentration of interest 0 First, the majority of commercial sovereign bank loans to developing countries was extended to the Latin American governments and this commercial credit constituted the bulk of the region's access to external financial flows. It is this unique interlocking of private creditors and with sovereign debtors which placed the crisis at the centre of international economic debate.
Second, with the exception of a few of the smaller economies, Latin America has been characterised by net negative financial transfers, at least since 1983. Third, the genuine peril Latin American defaults could present to the international financial system have concentrated attention on this region and made the 'solutions' or strategies for a solution determined for this territory the norm for use elsewhere.
Assuming that an examination of the international debt crisis and that of Latin America in particular is warranted, this thesis will concentrate on the various strategies used by the international community to solve the Latin American debt crisis. The question of why the past strategies have failed should be answered, thereby shedding light on the future prospects of the present proposals. The direction in which the various debt management strategies have been moving and an analysis of whether this direction in the correct one is also covered by this thesis. The origins of the crisis also require some examination in order to set up a framework in which to analyse debt management in Latin America. I will attempt to trace the evolving debt strategy and explore the current perspectives on providing a long-term solution. In particular I will examine the current emphasis on voluntary debt reduction through various market based techniques and instruments, which represent a rather radical departure from the 'solutions' initially espoused by the international community at the onset of the debt crisis.
Chapter One gives a brief theoretical perspective on the various strategies carried out in the Latin American region. A brief examination of the theory on international capital movements, and international trade (particularly with respect to developing countries) is also dealt with.
Chapter Two traces the origins of the current debt crisis. The section looks at why the borrowing and lending occurred, and then why a crisis developed. The purpose of this chapter is to provide not only a background to the problem, but to help develop a framework within which we can critically appraise the evolving debt management strategies in Latin America.
Chapter Three examines the first stage of debt management in Latin America. This strategy which was carried out between 1982 and 1985 and had two main elements. The first step involved the rescheduling (delaying) of the debtor's principal and interest payments. The second part involved the debtor's adoption of a domestic adjustment and stabilisation program, under the aegis of the International Monetary Fund.
Chapter Four looks at the second stage in the Latin American debt strategy evolution. This phase, commonly referred to as the Baker plan, was in essence a realisation that the first debt management strategies were inadequate. The Baker proposal attempted to place a greater growth emphasis on the debt management strategies in force. It also attempted to decrease the large negative transfers of financial capital from the region.
Chapter Five gives a general summary of the present debt management strategies of Latin America. It describes the evolution and development of the secondary debt market which is so critical to the application of the 'menu' of options that this present strategy relies on so heavily.
Chapter six describes in detail all of the major and most commonly used market-based options which are available in the present strategy. It gives a brief analysis of the effectiveness and potential of each one in finding a solution to the debt crisis.
Chapter Seven finally progresses to the last step along the path of the debt management strategies in Latin America. The Brady proposal announced in March 1989 has yet to be developed into a comprehensive and coherent strategy. It also does not represent a substantial departure from the present strategy. It is, in effect, merely an expansion on several of the elements in the present 'menu' of options. Some criticisms are levelled against this strategy.
Chapter Eight is the final chapter and basically consists of a brief appraisal of this paper.