Why is Latin America so dependent on loans?

On August 5, after 30 hours of negotiations, the Argentinian government announced that it had come to a long-awaited agreement with its private creditors, allowing it do restructure its debt of almost USD 65 billion in foreign loans. The deal is a simple one: for every USD 100 the country owes its creditors, Buenos Aires will pay USD 54.80. 

This agreement doesn’t just allow Argentina to emerge from its “technical moratorium” status — which is how Economy Minister Martín Guzmán refers to the country’s ninth debt default in May this year — it also represents USD 30 billion in savings for Argentina’s public accounts. Furthermore, it is seen as the first political triumph of left-wing President Alberto Fernández, who took charge on the eve of the country’s current crisis. Three months after being sworn in, the Covid-19 pandemic reached Argentina’s borders. The country’s Central Bank says the economy is set to suffer a 9.5-percent drop in 2020. 

While this is certainly good news for Argentina, the country now turns its attention to another debt problem waiting in the wings: the USD 44 billion borrowed from the International Monetary Fund (IMF) during the administration of Mr. Fernández’s predecessor, Mauricio Macri. With the first debt terms resolved in August, now the government intends to resume its negotiations with the IMF until April 2021, believing that the positive outcome with private creditors may increase confidence in the country’s economic team.

Though Argentina has a particular penchant for borrowing, several other...