The External Debt, Financial Liberalization, and Crisis in Chile
Most Latin American countries are facing a dramatic problem of external indebtedness. Although generalized, the effects of the external shock on the economies of the debtor nations display considerable variety, which is due to the diverse bargaining powers of the countries, the different speeds and magnitudes of each country's indebtedness process, and the development and indebtedness strategies adopted by them. This chapter provides the main features of the financial opening-up process and gives brief details of the official conceptual framework, the policies adopted, and the evolution of capital movements and the external debt; special attention is given to bank loans and the behavior of the capital flows received by private debtors. It argues that in contradiction to the orthodox monetarist approach that the problems that arose were concentrated in the private-sector segment of the debt. The chapter explains why the massive inflow of financial capital was associated with a decline in the rate of capital formation.