# The Dance of the Millions: Latin America and the Debt Crisis Author: [[Jackie Roddick]] ## Review The author has an anti-capitalist, anti-market perspective on the latin american debt crisis. I bought this book to learn more about the crisis period but was a little disappointed with some of the ideological aspects of it. There was less emphasis on what caused the boom and more discussion of the 'western' involvement in the debt management and renegotiations of debt. Latam countries took on too much debt, used for unproductive purposes. When the commodity cycle turned down they faced balance of payment crises, capital outflows, inability to repay debt, and debt crises. The banks of the creditor countries (US, EU, Japan) could have faced a banking crisis if they had to write off those assets, so the governments and regional institutions tried to salvage the loans to 1) save the banking systems, 2) and to keep capital flowing (if they defaulted on the loans no bank would loan again.) While the author told this story through an anti-capital, anti-market lens, she actually make some very valid points. When the 'western institutions' got involved in the debt negotiations they put pressure on latin governments to do things that prolonged the economic pain, and benefitted foreign companies and governments. They did this under the guise of free markets, which is probably why many people take a similar stance to the author. But it's important to understand that these institutions (IMF/World Bank/ US government) were selective about free market policies, and supported those that suited them rather than the 'whole free-market enchilada'. The most obvious example of this is the institutions tried their best to avoid the default option. Within a capitalist economies, actors have the ability to default without giving up a claim on future wealth, yet here there were threats by the US of trade embargo on latam countries if they decided to go that route. That makes the decision pretty hard to make. Obviously you don't want debtors to default on loans whenever they choose, but this crisis was equivalent to a great depression in Latam. That begs the question, why were governments so involved in this debt negotiation? Why were they getting involved in the assets and liabilities of private companies and foreign countries? Unfortunately this is another problem that is quite easy to answer, and further blows up the myth of capitalism. The way banking systems work today (although it wasn't always this way) is that the government implicitly guarantees the banking system (and explicitly in the case of deposit insurance). If latam debtors defaulted it would have put the entire banking system of creditor nations at risk because they would have to bail it out. They have to in a two-tier banking system, there is only one source of base money controlled by the goverment through the central bank. Banking is the most regulated of all markets, not a free-market, and in my view this is at the root of the entire issue (most issues in the past 40 years). That's not to say the IMF/World Bank were conspiring under the guise of capitalism. They encouraged and made loans conditional on free-market policies, but mostly where it suited its sponsors. Putting pressure on wages or encouraging export markets at the expense of domestic industry is not laisez-faire. They forced latam countries to open up economies to foreign competiton and meanwhile rules/regulations made it difficult for locals to compete. "free markets for me, not for thee". It's only in recent years that I have started to understand why others perceive capitalism and free-markets as negative, self-serving ideologies of western countries or large corporations. It's because of periods like the latin american debt crisis. The upside of this is that there is a lot to learn from Latam monetary and fiscal history. Possibly every macroeconomic environment and policy has existed on that continent. Many of these countries have also learned from that period. Developed larger capital markets, implemented better monetary-fiscal policies, scarred by the lost decade. ## Key Ideas ## Related