Your Money or Your Life!

76/YOUR MONEY OR YOUR LIFE!

imperialist powers (1940-45) meant that the main lenders (Britain
and the US) could not muster the additional strength to recover their
unpaid Latin American debts by force.
Although a few countries that repudiated their debts could have
met their payments, they determined that the domestic social cost
would have been too high. Thanks to the suspension of payments, the
countries concerned were able to use these considerable financial
resources to pursue a policy of economic expansion. If they had
continued to service their debts, they would most certainly not have
been able to implement exchange controls and protectionist policies
against a variety of products from the North. These latter measures
led to real development thanks to a process of 'industrialisation
through import substitution' (see glossary). Countries produced
domestically many of the items previously imported from the North.
If these countries had not suspended foreign debt payments, they
would not have been able to undertake the wide-ranging public
works programmes which were to play a key role in the region's
economic recovery. Interestingly enough, a variety of very different
political regimes pursued this line of action (Vilas, 1993). As Carlos
Vilas has noted, however, such converging policies were not part of
some preconceived plan. Only later, especially with the creation of
CEP AL (Comision Economica Para America Latina - Latin American
Economic Commission), did industrialisation through import substi­
tution become part of a common strategic vision. This approach
replaced that of export-driven industrialisation (Vilas, 1993).

Debt Repudiation and Economic Recovery

The following question must now be asked: How closely is economic
recovery linked to debt repudiation?
A study by David Felix (Felix, 1987) compares the evolution
between 1929 and 1939 of five countries, on the one hand, that
totally repudiated their debts (Brazil, Colombia, Chile, Mexico and
Peru) and Argentina, on the other, which only repudiated a part of
its debts. The study shows that the five showed better economic
results than Argentina.
Whether total or partial, repudiation led to a recovery of
production in the countries concerned.
Between 1929 and 1939, GNP in Brazil, Colombia and Mexico
rose more quickly than in the US, France and Canada. After 1932,