In 1985 I was running the largest merchant banking unit in my bank, something called the New York City Division. It was what all my peers aspired to do, but I found it sort of boring to be doing things like helping ITT do its next acquisition or helping Ron Perlman at Revlon reshape his juggernaut. I was asked to go up to talk to our Vice Chairman, who said the Management Committee wanted to see if I was willing to take on a different challenge. It was to take the bank’s $4 billion portfolio of Latin American sovereign debt (the “Debt Crisis” for LDC debt had begun in 1982) and find a better way out of the mess. We had about $1 billion in capital at the bank and there were signs that the value of that debt could fall well more than 25%. This was an almost universal problem among the worlds larger banks, so I was being asked to take on a task that was both existential and already over-worked by the banking market. It took me less than ten seconds to say I would do it. Totally a red flag to a bull.
I spent the next four years building a team to address the problem in unique and creative ways and not only significantly addressed the problem in ways that were emulated by the rest of the industry, but also helped recognize and develop the pony in all the horse shit, resulting in the building of what became the highly profitable Emerging Markets Department of the bank. It was a very heady time for me…I was in my early 30s, so anything seemed possible. It made me a very young partner in the firm, but it also taught me a lot about Latin America, a place that is a big part of my personal family heritage, having lived six of my first seven years in the region (Venezuela and Costa Rica). I came away with a very pragmatic view about the region because I had become a student of the cycles and the national psychology of many of the major countries. I traveled extensively there over those years and while the passage of time changes many things (I just went to Chile, Uruguay and Argentina earlier this year), I believe there are fundamentals in terms of the economies and national psychologies that are largely unchanged and still operative.
This all comes to mind right now because of the Trump Administration’s actions in the region in pursuit of what seems to be his manifest destiny for hemispheric dominion. When I was working the debt problem in the 80’s, the big debtor nations were Mexico and Brazil, followed by Argentina, Chile and Venezuela (that was before Chavez or Maduro). Mexico has largely solved its debt problems with only 58% of GDP currently on the books. To put that in perspective, the U.S. has a 124% debt/GDP ratio (though the fact that its denominated in its own reserve currency makes that more sustainable in a financial sense). Brazil has about 77%. Argentina stands at over 85%. Chile stands at a modest 44%. And Venezuela, is the most indebted in the region with 150% of GDP currently. It’s interesting that the focus of Trump’s efforts are directed towards the most indebted and financially shaky countries in the region. In the case of Venezuela, they have been a pariah in the global markets since Chavez came into power in 1999. Thatcher situation has only gotten consistently worse with the passage of time as first Chavez and then Maduro have increased their authoritarian reign and advanced their kleptocracy contrary to the interest of everyday Venezuelans. In the case of Argentina, the situation is much less political than it is economic and cultural. Argentina has always been a darling of the global markets despite its continually stumbling economics. Argentines want to be close to Europe and America and want to be global citizens where Venezuelans seem content to think they can be self sufficient and don’t need interference3 from global actors from Europe or the U.S..
Back in my day, the total debt burden was about $315 billion compared to today’s level of $1 trillion, more than 3X where it was. Inflation alone accounts for about 88% of that, but that still leaves more than $120 billion of new debt that didn’t exist during the difficult debt crisis days. And lots of that debt is due to Venezuela and Argentina. Despite the fact that the countries’ economic problems are really quite different, they are still both heavily dependent on natural resources of one kind or another. Argentina has a diversified economy with services dominating and agriculture (soy, corn, wheat and beef) as the big export contributor, while Venezuela remains overwhelmingly dependent on petroleum, despite the oil sector’s collapse from mismanagement and sanctions…which is what mostly gives rise to its biggest economic woes.
The history of sovereign debt to Latin America is a cycle of boom, bust, and crisis that has repeated itself several times over two centuries. Following independence from Spain and Portugal in the early 1800s, newly formed Latin American nations immediately sought loans from European creditors, primarily British banks. The first major default wave came in the 1820s when virtually every new nation defaulted on these loans. This pattern repeated throughout the 19th century, with periods of heavy borrowing followed by defaults during economic downturns. The 1930s Great Depression triggered another massive default wave. By 1935, nearly every Latin American country except Argentina had defaulted on their external debts. The economic collapse and falling commodity prices made debt service impossible. After World War II, Latin America initially saw more modest borrowing, often from multilateral institutions like the World Bank and IMF. However, the 1970s brought a dramatic shift. Flush with petrodollars, commercial banks in the U.S. and Europe aggressively lent to Latin American governments at low real interest rates. Countries like Mexico, Brazil, and Argentina borrowed heavily to finance industrialization and development projects. In August 1982 when Mexico announced it could no longer service its $80 billion debt, this triggered the broader Latin American debt crisis, as Brazil, Argentina, and other nations faced similar predicaments. The crisis stemmed from several factors: rising U.S. interest rates (which increased debt service costs on variable-rate loans), falling commodity prices, capital flight, and overvalued currencies. The 1980s became known as Latin America’s “Lost Decade.” Economic growth stalled, living standards declined, and countries struggled under crushing debt burdens. The resolution came gradually through several mechanisms. The Baker Plan (1985) encouraged continued lending and structural reforms, though it largely failed. The more successful Brady Plan (1989) allowed countries to exchange old loans for new Brady Bonds at reduced face values, effectively writing down a portion of the debt. Countries also implemented structural adjustment programs mandated by the IMF, involving privatization, trade liberalization, and fiscal austerity.
The 2000s brought prosperity to Latin America, driven by a commodities boom (particularly in oil, copper, and soybeans) and China’s growing demand for resources. Many countries, like Brazil and Mexico, paid down debt and built reserves. But Argentina has continued its pattern of defaults, most recently restructuring its debt in 2020 after defaulting for the ninth time in its history. Venezuela’s economic collapse led to default in 2017. The Trump administration announced a comprehensive $40 billion support package for Argentina just before crucial midterm elections in October 2025 in the form of a $20 billion currency swap from the U.S. Treasury Department to support Argentina’s peso and an additional $20 billion facility from private banks and sovereign wealth funds. Trump explicitly tied this support to Milei’s electoral success, stating “If [Milei] loses, we are not going to be generous with Argentina” . Milei’s party won the October 26 elections in what was considered a surprising landslide victory…imagine that. Argentine’s are nothing if not pragmatic. But just today, the private bank portion of the deal collapsed. JPMorgan Chase, Bank of America, and Citigroup shelved the planned $20 billion bailout and are instead pivoting to a much smaller arrangement…imagine that as well. This deal has proven highly controversial in the U.S., with opposition from both parties for different reasons—some objecting to the size during domestic budget constraints, others concerned about Argentina’s recent agricultural deal with China that affects American farmers.
But that’s nothing compared to the controversy Trump is creating over Venezuela, where he has authorized attacks on local boats, killing over 80 Venezuelans and positioning the U.S. to invade Venezuela…all without Congressional approval on the “trumped-up” accusations that its all about a war on drugs.
There are good ways and bad ways for dealing with Latin American credit addictions and profligate fiscal spending (and/or corruption), but I am not clear that we solve any of those problems by reloading Latin America, either with Argentine quasi-MAGA debt or with naval artillery off the coast of Venezuela.