External Debt and Macroeconomic Performance in Latin America and East Asia

Abstract

SINCE THE ONSET of the international debt crisis in the early 1980s, the dismal economic performance of the Latin American debtor countries has been frequently contrasted with the strong performance of their East Asian counterparts.Table 1 documents the remarkable difference.Throughout East Asia, with the exception of the Philippines, the developing countries have maintained strong growth rates and low inflation.None but the Philippines has been forced to reschedule its foreign debt.On the other hand, throughout Latin America, with the partial exception of Colombia, national incomes have grown slowly or have declined, inflation has surged, and debtors have been forced to reschedule their outstanding debts.Many analysts have already tackled the problem of explaining why Latin America's record is so poor compared with East Asia's.Each has pointed to different "lessons" to be learned.I Some argue that the Asian record is better because the external shocks that hit the Asian countries I would like to thank Data Resources, Inc., for generous access to its computer facilities, Abhijit Banerjee and Nuriel Roubini for very helpful research assistance, and Jorge Dominguez and Dwight Perkins for helpful discussions.My deep intellectual debt is to the late Carlos F. Diaz-Alejandro, a dearfriend and colleague, who generously introduced me to the economics of Latin America.1.A thorough and stimulating comparison of the two regions can be found in Chingyuan Lin, "