The boom and bust of latin American lending, 1970-1992

External borrowing by debtors in Latin America has followed a rollercoaster pattern during the past two decades. From 1970-1981, the growth of external borrowing averaged 27% per year across the region, while from 1982-1992 foreign debt grew at a rate of 4.3% per year. This paper analyzed the factors which contributed to this pattern of borrowing, from the perspectives of both the lenders (particularly commercial banks) and the borrowers (particularly national governments). A pooled cross-section, time series model was estimated to explain the growth of foreign debt in 18 Latin American countries during the period 1970-1992. In the full period and in one or both sub-periods individually, the growth of foreign debt was significantly positively correlated with GNP and per capita GNP. Debt growth was significantly negatively correlated with the country's trade balance.