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On the Origins of Moral Hazard: Politics, International Finance and the Latin American Debt Crisis of 1982

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  • Altamura, Carlo Edoardo
  • Flores Zendejas, Juan

Abstract

A consensus has not been reached in the ongoing debate on the effects of lender of last resort functions by the IMF, given the contradictory results from macroeconomic analyses that depend upon samples and periods. This paper sheds new light on the relationship between international banks and their home governments, the IMF and international regulators during the years that preceded the debt crisis of 1982. Based on new archival evidence, we find that commercial banks' decisions to lend were largely based on home governments' preferences, competition, and the assumption that home governments and international organizations would provide lending of last resort functions to support borrowing governments. These factors also influenced loan pricing. While previous works suggest that the 1982 debt crisis was unexpected, we show that banks reacted to the deteriorating macroeconomic situation in many emerging economies once the role of international organizations as lenders of last resort became uncertain.

Suggested Citation

  • Altamura, Carlo Edoardo & Flores Zendejas, Juan, 2016. "On the Origins of Moral Hazard: Politics, International Finance and the Latin American Debt Crisis of 1982," Working Papers unige:82509, University of Geneva, Paul Bairoch Institute of Economic History.
    • Handle: RePEc:gnv:wpaper:unige:82509
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    References listed on IDEAS

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    1. Feder, Gershon & Just, Richard E., 1977. "An analysis of credit terms in the eurodollar market," European Economic Review, Elsevier, vol. 9(2), pages 221-243.
    2. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-734, September.
    3. Kahler, Miles, 1985. "Politics and international debt: explaining the crisis," International Organization, Cambridge University Press, vol. 39(3), pages 357-382, July.
    4. repec:ags:ucdavw:225633 is not listed on IDEAS
    5. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending; A Test," IMF Working Papers 02/181, International Monetary Fund.
    6. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    7. Roland Vaubel, 1983. "The Moral Hazard of IMF Lending," The World Economy, Wiley Blackwell, vol. 6(3), pages 291-304, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Sovereign debt markets; Sovereign defaults; International finance; Moral hazard; Country risk;

    JEL classification:

    • F3 - International Economics - - International Finance
    • N2 - Economic History - - Financial Markets and Institutions
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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