What Can The Developed Countries Can Learn From Latin American Debt Crisis. Essay Examples

In the year 2007-2008 there was a global financial crisis that was caused by institutional failure and lack of good regulatory frameworks in the economies. From those crises it was very clear that price stability cannot be relied to bring about financial stability in the economy and as result countries opted to use the methods of strengthening their financial system to fight the crisis.
The Latin American countries faced a lot of debts in the public sector and the developed countries facing the same crisis today should try to copy what the Latin American countries did to fight the debt. The first measure that the developed countries should borrow is the adjustment of their fiscal policies by the use of the standby programs by the IMF. The reason being, the fiscal adjustment set the stage for new economic growth. There is need to reduce the uncertainties and at the same time stimulating economic growth. The fiscal adjustment strategy will also help the European countries to stabilize their GDP to debt ratios and for them to manage this strategy; they need to generate 5 to 12 % on their GDP annually on primary surplus.
Another important concept that Europeans countries can borrow from the Latin Americans countries crisis is by stimulating their growth through the adapting the structural reforms. The countries should make themselves more open economies by undertaking trade reforms and remove any unnecessary trade tariffs that may impede free trade. There is need also for the privatization of the public sector and the liberalization of the financial system. In the European countries, the exchange rate depreciation is not open and there need for it to be made open. Since it will help them to achieve both the medium and long term debt sustainability and this is the most important factor for economic development.
Additionally, the European should seek debt relief by using the Brady plan. The Europeans countries require the patience of their creditors in term of debt collection just like what the Latin American countries had to do. Putting the necessary structural measures in place and domestic fiscal measures also is not enough for trade take off if the countries do not address their debt s. The European countries should come up three strategies to manage their debts; first they should come up with a mechanism for sharing debt that has the right incentives for them to service their new debts, secondly, the countries should come up with a new and revised disbursement guarantee and lastly, there is need to reduce the default risk. The European countries should also try to negotiate with the IMF for the reduction of their debts to manageable levels that do not affect their economic growth. As a matter of fact the adoption of the debt relief and implementation of the fiscal adjustment will aim at making the disinflation a success. The same thing happened to Mexico when it adopted the Brady plan.
The Europeans countries should also concentrate on strengthening their capital inflows. The countries should promote direct foreign investments since they have an impact of raising the financial depth and increasing in the financing of the private sector by the banks and this will at long last lead to the growth in the domestic consumption of available resources.
Conclusively, I do agree with these policies to some extend because for a country to grow it has to take care of external debt, promoting its growth through the adoption of the various structural changes in the economy and lastly by building their capital inflows in their economies. The European countries should also work at ensuring that, decision making responsibilities lays with many institutions not just the ECB. The European countries should also have to handle the policy making process without the influence of the politicians.