The modern economic histories of eleven major Latin American countries — histories since 1960, when we begin to have consistent data — show that periods of economic decline followed financial crises caused by poor fiscal management. The challenge for us as economists is to build models to show that the financial crises have caused drops in producticity, not just to show correlation or to tell stories.
Bank bailouts can help push an economy through a financial crisis or they can result in drops in productivity. Privatization can result in productivity gains or they can keep productivity stagnant if they merely shift inefficient monopolies from public ownership to private ownership.
To avoid fiscal crises, a government needs to keep the ratio of sovereign debt to GDP low, but it also needs to engage in sound fiscal management, keeping the debt service due at every point in time to safe levels by keeping the maturity of the debt long.
In December 2020, the Government of the Dominican Republic offered to repurchase 3.5BN USD in bonds becoming due in 2021, 2024, and 2025 and replace them with bonds becoming due in 2032:
DR Bond Repurchase Offer, DR Bond Tenders Received.
Encouraged by the success of this operation, in February 2022, the Government of the Dominican Republic has engaged in
further operations to lengthen the maturity of its sovereign debt.
The 1982 Mexican default touched off the Lost Decade of the 1980s in Latin America, a period of profound and tragic human suffering. Was Latin America's Lost Decade a simple matter of miscalculation by the Mexican government? Or does the United States government also bear some of the blame?
A review in the Finnish Economic Review by Ritva Reinikka of A Monetary and Fiscal History of Latin America, 1960–2017. The review is in Finnish. Here is an English translation by Google Translate.
