In 1979 there was a second major oil shock and interest rates increased. Why did interest rates increase? 52. In 1973 oil prices increased. What is the relation between higher oil prices and inflation? 53. What are the main factors for the 1982 eruption of the debt crisis? 54. What are the external and domestic origins of the Debt Crisis in Latin America? 55. What is capital flight? What are its causes, and why is it dangerous? When a local currency is overvalued, do we observe capital flights? Why? 56. In August 1 982 which Latin American country was the first one defaulting on its external debt?
What was the repercussion? 57. After Mexico default in 1 982, financial analysts finally noticed how much risk commercial banks were facing. What did they think was the nature of the problem of Latin American countries? How did they think the problem could be fixed? By 1987, both creditors and debtors realized that it was much more of a serious problem. What was the nature of the problem now? What type of measures should be undertaken? 58. During the sass, in Mexico, inflation kept increasing. What are the two most important reasons that led to this increase? 59.
Mexico suffered a crisis in 1976. What were the economic problems that led to this crisis? 60. In 1976 Mexico devalued its currency from 12. 5 to 19. 8 pesos per dollar. What are the effects of such devaluation on local consumers, investors, and on external debt? 61 . What is Central? When was it discovered? When did it start operating? 62. In Mexico, during the sass, structural reforms were not undertaken. What are the two reasons that delayed the reforms? (one reason during early sys and one during late sys) 63. Explain how Mexico lived the oil boom during the sys and early sys.
Was it good or bad for its economy? 64. Two international events affected Mexico and forced the country to default in August 1982. What are these events and how did they affect? 65. Lopez Portfolio claimed: “I’ll defend the peso like a dog”. With which mechanism was he defending the exchange rate? Why did he have to devalue the currency in February 1982? 66. After Mexico default in 1 982, financial analysts finally noticed how much 67. During the sass macroeconomic stabilization programs were implemented in Latin America. What were the four issues they were trying to fix? 8. During the sass banks found a way to reduce their exposure to unwanted debt by developing a secondary market for debt. What is this and why did it help them to reduce their exposure? 69. In 1987 Peer’s debt could be purchased in the secondary market for 2 to 7 cents on the dollar. Why was it traded with such a big discount? 70. Another financial innovation was created: Debt-for-equity swaps. How did this work? Why was the government satisfied? Why were firms satisfied? 71 . Costa Rica widely used another financial innovation: debt-for-nature swaps. How did this work? 72.
The traditional Miff’s measures to resolve the debt crisis were not successful. Why? The Baker plan recognized that the nature of the problem was different and alternative measures should be undertaken. What did they think it was the nature of the problem? 73. Why was the Baker plan not successful? 74. Why was the Brady plan more successful than the Baker plan? 75. What made the Brady plan different from previous debt restructuring programs? 76. Brady bonds were thought to be risk free. However, in 1999 which country was the first one partially defaulting on its Brady obligations. How did the MIFF react?
What was the message that was sent to the international community? 7. What was the debt buyback scheme? How could this scheme alleviate debt burdens for the country in need? 78. What is the macroeconomic policy trillium? 79. In reference to the macroeconomic policy trillium, carefully explain why the following statement is true: “If an economy follows a policy of fixed exchange rate and international capital mobility, then it is the case that a current account deficit will result in a decrease in the money supply. ” 80. What are the costs of inflation? 81 . Brazil suffered from indexation.