By the early 1980s certain developing countries (especially in Latin America) had amassed huge debts payable not only to large international commercial banks but also to the IMF and the World Bank. In 1982 Mexico, Brazil, and Argentina announced that they would be unable to pay interest on their loans. At the same time, many of these countries were also experiencing runaway inflation. Many countries in Africa were facing similar problems.
To prevent a meltdown of the entire financial system, international agencies stepped in with a number of temporary solutions to the crisis. Repayment schedules were revised to put off repayment further into the future. Then, in 1989, U.S. Treasury Secretary Nicholas Brady unveiled the Brady Plan. The Brady Plan called for large-scale reduction of the debt owed by poorer nations, the exchange of old loans for new low-interest loans, and the making of debt instruments (based on these loans) that would be tradable on world financial markets. This last feature allowed a debtor country to receive a loan from an institution and then use it to buy special securities (called “Brady Bonds”) on financial markets. Funds for these new loans came from private commercial banks and were backed by the IMF and the World Bank.
Thousands of Argentinean farmers demonstrate against government policies near Gualeguaychu, in the Entre Rios province of Argentina. The International Monetary Fund (IMF) helped Argentina out of a recent financial crisis. Yet ordinary people strongly protested prescriptions of the IMF that called for high interest rates to prevent foreign investors from fleeing. As a result, many people lost their jobs and had their savings wiped out by a falling currency. Should the IMF have the power to dictate policies for countries that need aid?