Debt Crises and IMF Crisis Lending

The 1980s Latin American debt crisis is conventionally dated from August 1982, when Mexico’s finance minister, Jesús Silva Herzog, informed creditors that the country could no longer service its foreign debt, an announcement that became known as the "Mexican weekend" because it broke over a bank holiday. Mexico’s default triggered a broader crisis across the region, as Brazil, Argentina, and other heavily indebted Latin American governments, which had borrowed heavily in dollars, much of it recycled by international banks from the surpluses of oil-exporting countries after the 1973 and 1979 oil shocks, found themselves unable to roll over their obligations once US interest rates rose sharply following the Federal Reserve’s anti-inflation policy under Chairman Paul Volcker beginning in 1979. The resulting decade of stagnant growth, high inflation, and repeated debt renegotiations across the region became known in Latin America as the "lost decade." A durable resolution only began to emerge with the Brady Plan of 1989, named after US Treasury Secretary Nicholas Brady, which allowed commercial bank debt to be exchanged for tradable "Brady bonds" backed partly by US Treasury collateral, reducing principal and easing the path toward renewed market access.