Before you start
What you'll be able to answer
- How did developing countries come to owe so much by the early 1980s?
- Who warned that the lending might not be safe, and when?
- What happened in 1982, and how was Mexico helped?
Where this sits
The Great Inflation — 1971 to 1982 · this module is lit
- 15 Aug 1971The United States stops turning dollars into gold, freezes wages and prices, and puts a tax on imports
- Dec 1971–Mar 1973New fixed rates are agreed in December 1971, with the dollar devalued against gold; they break down, and by March 1973 the main currencies float
- 1972Food and commodity prices start to climb, while consumer prices across the rich world are already rising
- Oct 1973Arab oil producers embargo shipments to the United States and the Netherlands
- 1974Imported crude costs US refiners far more than in 1973; in America inflation and unemployment rise together
- Jan 1976At a meeting in Jamaica, IMF members agree that each country may choose its exchange-rate arrangement; gold is to lose its official price
- 1979Iran's revolution cuts its oil production, and the oil price rises a second time
- Oct 1979The Federal Reserve raises its discount rate, the rate at which it lends to banks, and most of the other countries the series follows raise an official rate within two months
- 1982Net bank lending to the developing countries that did not export oil halves, and a debt crisis begins
- 1983Inflation is below its peak in all eleven countries the series follows
Mexico's foreign debts in 1982
In the second half of 1982 Mexico, and later Brazil, had trouble paying what they owed on their foreign debts, the International Monetary Fund (IMF) reported. The IMF lends to member countries that run short of foreign currency. Through the 1970s banks had lent large amounts to many developing countries, including Mexico. How had so much been borrowed, and what happened when the lending stopped?
Mexico exported oil. How do you think a country's oil reserves affected banks' willingness to lend to it in the 1970s?
More willing, in the Council of Economic Advisers' account. A later section says why.
Developing countries' borrowing after 1973
After the first oil shock, the oil price rises of late 1973, the oil exporters earned far more abroad than they spent. Their dollar earnings came to be called petrodollars, and passing them on to borrowers was called recycling. In the IMF's 1983 account, banks and other private lenders played a crucial part in this recycling, and the need to recycle was a major spur to international bank lending in the mid-1970s. On one IMF measure, banks and other private lenders met 45 per cent of the financing needs of the developing countries that did not export oil in 1973 and 57 per cent in 1980, with a dip in between. Those needs were their spending abroad beyond their earnings, plus what they added to their reserves of foreign currency. The group's total foreign debt was $161 billion in 1974 and $612 billion by the end of 1982.
Mexico's borrowing in the 1970s
Mexico sold more oil abroad than it bought, but the IMF counted it among the developing countries that did not export oil. Mexico's total foreign debt was $10.67 billion in 1973 and $78.41 billion in 1981, on World Bank figures. Lenders found rapidly growing debts of this kind less alarming than they might have, in the US President's Council of Economic Advisers' view in 1983. Exports of the developing countries that did not export oil grew 18 per cent a year from 1973 to 1981, which seemed to give the means to pay. In the Council's account, lenders also treated oil reserves as an asset to borrow against. From 1973 to 1979 Eurodollar rates in London, rates on dollar deposits at banks outside the United States on which most international loans were based, averaged 8.5 per cent, while US wholesale prices rose 9.8 per cent a year.
Source: World Bank, International Debt Statistics, external debt stocks, total (DT.DOD.DECT.CD), Mexico. CC BY 4.0, retrieved 2 October 2026.