ABSTRACT
In 1981–82, Chile suffered a “twin crisis” that was in many ways a precursor to the wave of financial crises that followed during the final decade of the twentieth century and first decade of the twenty-first. 1 The 1980s is known as the “lost decade” in Latin America because of the disastrous real consequences of the financial crises suffered by many countries in the region. Those crises were associated with their inability to service their external debts, which in most countries had been incurred by the public sector, since private firms and households had little access to the syndicated bank loans that were the primary form of international lending to developing countries at the time. Chile was different. While the country had accumulated substantial external debt, relatively little of it had been incurred by the government. 2 A strong commitment to fiscal discipline during the second half of the 1970s had kept the Chilean government out of international capital markets precisely at the time when OPEC oil revenues, recycled through the banking sectors of the industrial countries, caused capital to begin to flow freely to developing countries for the first time since the Great Depression.
