Deck 14: Developing Countries and International Finance I: the Latin American Debt Crisis

Question 1

In 2009,the World Bank and other multilateral development agencies provided an additional development assistance of

A) $9 billion.
B) $21 billion.
C) $51 billion.
D) $72 billion.
E) $93 billion.

Answer 1

B

Question 2

According to research cited by Oatley,many studies have found that one dollar of additional foreign capital in a developing country produces additional investment of

A) fifty cents.
B) seventy-five cents.
C) one dollar.
D) two dollars.
E) three dollars.

Answer 2

C

Question 3

Of the following countries,which is the least generous in providing foreign aid as a percentage of its national income?

A) United States
B) Japan
C) Germany
D) France
E) United Kingdom

Answer 3

A

Question 4

In the 1950s and 1960s the principal sources of foreign capital for developing countries were

A) FDI and foreign aid and neither was abundant.
B) SWF and foreign aid and neither was abundant.
C) FDI which was abundant and foreign aid which was not.
D) foreign aid which was abundant and FDI which was not.
E) FDI and foreign aid and both were abundant.

Question 5

In general,private capital typically constitutes somewhere between

A) one tenth and one quarter of all capital flows to the developing world.
B) one quarter and one third of all capital flows to the developing world.
C) one third and one half of all capital flows to the developing world.
D) one half and two thirds of all capital flows to the developing world.
E) two thirds and three quarters of all capital flows to the developing world.

Question 6

By 1982,the thirty most heavily indebted developing countries owed more than $600 billion to foreign lenders.Creditors initially diagnosed the debt crisis as a

A) long-term liquidity problem.
B) medium-term liquidity problem.
C) short-term liquidity problem.
D) failure of ISI trade policies.
E) medium-term energy related problem.

Question 7

In the 1980s many developing countries were allowed to reschedule their existing debt payments.These rescheduling agreements

A) forgave some debt.
B) reduced interest payments on the debt.
C) reduced interest rates on the debt.
D) required prior approval by the IMF on the content of the stabilization package.
E) reduced the number of years allowed for repayment of the debt.

Question 8

According to Oatley,abrupt cessation of commercial bank lending in Latin America in the early 1980s,

A) allowed many debtor countries to finance large current account deficits.
B) no longer allowed governments to pay for increased energy exports.
C) allowed governments to invest more than they could have otherwise.
D) ended the economic boom of the 1970s abruptly.
E) relaxed many of the constraints that had characterized the foreign-aid dominated system of the 1950s and 1960s.

Question 9

In the late 1970s and early 1980s,Latin American countries were vulnerable to

A) rising debt service ratios.
B) lower interest rates.
C) lower migrant remittances.
D) higher export revenues.
E) lower export revenues.

Question 10

Foreign aid accounts for half or more of all foreign capital flows to
A) East Asia & Pacific.

A) Latin America & Caribbean.
B) Sub-Saharan Africa.
C) South Asia.
D) Middle East & North Africa.

Question 11

Between 1956 and 1970,the amount of aid provided through multilateral development agencies increased

A) by 50%.
B) by 150%.
C) by 250%.
D) by 400%.
E) by 500%.

Question 12

IMF conditionality agreements have long been a source of controversy.Which of the following statements is not criticism of these agreements?

A) These agreements reduce economic growth.
B) These agreements raise unemployment.
C) These agreements are inappropriately "one size fits all".
D) These agreements push vulnerable segments of society deeper into poverty.
E) These agreements make private foreign lenders more unwilling to invest.

Question 13

According Oatley's figures,which region of the world had the highest average savings rates as a percent of GDP,1970-2006?

A) East Asia & Pacific
B) Latin America & Caribbean
C) Sub-Saharan Africa
D) South Asia
E) Oceania

Question 14

Between 1970 and 1980,the developing world debt as a whole to foreign lenders went from

A) $172.7 billion to $856.7 billion.
B) $72.7 billion to $586.7 billion.
C) $27.7 billion to $186.7 billion.
D) $172.7 billion to $686.7 billion.
E) $72.7 billion to $436.7 billion.

Question 15

As a result of the oil price increases and other factors,budget deficits in Latin America by the end of the 1970s on average were about

A) 4.5% of GDP.
B) 5.4% of GDP.
C) 6.7% of GDP.
D) 7.4% of GDP.
E) 9.4% of GDP.

Question 16

The foreign debt of the seven most heavily indebted Latin American countries between 1970 and 1982 increased by a factor of

A) five.
B) seven.
C) ten.
D) twelve.
E) fifteen.

Question 17

The expansion of foreign aid programs during the 1960s reflected changing attitudes in advanced industrial countries as largely a product of the dynamics of

A) globalization.
B) decolonialization.
C) commonwealth.
D) free trade.
E) sovereign wealth funds.

Question 18

In 2009,the advanced industrial countries together provided bilateral assistance to developing countries in the amount of

A) $39 billion.
B) $69 billion.
C) $99 billion.
D) $119 billion.
E) $149 billion.

Question 19

Creditors were able to push such a large share of the adjustment costs onto the debtor governments because

A) debtor governments were better at maintaining a common front.
B) creditors were better able to solve the free rider problem better than debtors.
C) smaller banks had lent less of their capital.
D) larger banks could charge their losses to taxpayers in advanced industrial countries.
E) the IMF threatened to make it difficult for the smaller banks to operate in the interbank market.

Question 20

The center piece of macroeconomic stabilization program intended to eliminate the large current-account deficits was the reduction of

A) capital outflows.
B) unemployment.
C) exports.
D) budget deficits.
E) MNC profits.

Question 21

Developing societies import foreign capital because it makes it possible to finance more investment at a lower cost than relying solely on their domestic savings.

Question 22

Foreign aid to sub-Saharan Africa is about the same as to other regions in the developing world.

Question 23

Political instability is one of the most important reasons why sub-Saharan Africa attracts so little private capital.

Question 24

The Latin American debt crisis was declared over in the mid-1990s.According to Oatley,in hindsight,it is clear that

A) it was more of a financial crisis than an economic development one.
B) it was more of an economic development crisis than a financial one.
C) structural adjustment policies of the IMF pushed most of the costs onto the foreign commercial banks.
D) more generous foreign aid would have prevented the crisis.
E) reforms did not provoke enough changes in Latin American political and economic systems.

Question 25

Structural adjustment programs were controversial because they sought to reshape the indebted economies by increasing the government's role and reducing that of the market.

Question 26

Why has sub-Saharan Africa failed to attract so little private capital and subsequently had to rely more on foreign aid than other developing regions?

Question 27

Why do developing countries continue to draw on foreign capital in spite of its apparent political dangers?

Question 28

Describe and explain why and how debt service ratios rendered Latin American countries vulnerable to international economic shocks in the 1980s.

Question 29

Which of the following domestic interest groups in developing countries stood to lose the least from stabilization and structural adjustment?

A) Import-competing firms
B) State-owned enterprises
C) Workers in the urbanized non-traded goods sector
D) Rural farmers
E) Public sector employees

Question 30

Explain how and why the expansion of foreign aid programs in the 1960s was influenced by decolonialization and American desires to contain Soviet Communism.

Question 31

Rising American interest rates in the early 1980s were transferred directly to Latin America because two-thirds of Latin American debt carried variable interest rates.

Question 32

According to Oatley,which of the following was not a reason that induced developing governments to embark on economic reform in the 1990s?

A) Altered power of previously favored interest groups
B) The Brady plan
C) Long-run costs would be offset by short-term gains
D) Latin American recognition of the East Asian model's successes
E) Commercial banks would be the primary beneficiary of reform

Question 33

Throughout the postwar period,private capital flows have been larger than foreign aid flows.

Question 34

Explain and discuss how each phase of the boom-and-bust cycle has characterized the history of capital flows from the advanced industrial countries to the developing world.

Question 35

Developing countries continue to draw on foreign capital because they do not understand that the political dangers outweigh the economic benefits.

Question 36

At the center of the difficult relationship between developing countries and the international financial system is a seemingly inexorable boom-and-bust cycle.

Question 37

During the 1980s,the most accurate estimate of Argentina's average inflation rate per year was over

A) 150%.
B) 300%.
C) 500%.
D) 700%.
E) 900%.

Question 38

The Cold War did not contribute to the tremendous growth of foreign aid programs during the 1960s.

Question 39

According to Oatley,governments in debtor countries never threatened collective default primarily because

A) creditors would offer "special deals" to induce particular governments not to join a default coalition.
B) they were afraid of future IMF retaliation.
C) they knew it would destroy their credit rating.
D) they knew all debt would still have to be repaid in the long run.
E) they feared invasion by advanced industrial countries to seize their resources like they did in the 1920s and 1930s.

Question 40

If all Latin American debtor governments had defaulted in the 1980s,most of the capital of the largest American commercial banks would have been eliminated.

Question 41

Explain how and why domestic politics in developing countries caused most governments to delay implementation of stabilization and structural adjustment programs.

Question 42

What are the pros and cons of IMF conditionality to the funds it extends to developing countries?

Question 43

Explain the process and the consequences of weighted voting in the Executive Board of the IMF.Why has the managing director usually been a non-American?

Question 44

Explain the rationale and consequences of structural adjustment programs on the economic crisis for Latin America in the early 1980s.

Question 45

Explain the origins and the effects of the Brady Plan on debt-reduction agreements with debtor governments.