Excessive debt and insufficient taxation are the basis of Latin America's current economic problems. Disenchantment with the existing debt strategy has been increasing, and US Treasury Secretary ...Baker's plan for resolving the Latin American debt problem has failed to prompt commercial banks into increased lending to debtor countries. Excessive Latin American borrowing in the 1970s reveals a lack of supply constraints on lenders who were pressured to invest deposits made by oil-producing countries. Also, the cumulative impact of the 1978-1982 surge in interest rates, the 2nd oil shock, and the deep fall in Latin American terms of trade contributed to the debt problem. National growth depends on a country's ability to invest to obtain a sustained increase in real national product and to save a growing proportion of its rising income. Latin American governments should pursue more rational expenditures and should increase taxation.
