Question

In the early 1980's the debt to GNP ratio of South Korea was the same as the debt to GNP ratio of Argentina. Yet while Argentina was embroiled in a "debt crisis", South Korea (with the same amount of debt) was not. According to Jeffery Sachs, what are the four possible explanations for this difference that have discussed in the literature. According to Sachs, which of these explanations is correct? Describe the evidence that Sachs presents to prove his point.

Answer 1

Solution:

By 1980 the debt to gnp ratio of south korea was same that of argentina but yet there was no debt crisis the possible explanation by jeffery sachs are :

• The difference in not only in the amounts borrowed, but also in the uses to which the loans were applied this was one of the difference.
• The second one which can be stated is that the exports grew more rapidly in south korea than in argentina.
• The third one can be seen as the export-GDP ratios in south korea  were far higher than those in argentina.
• The fourth one can be seen as the export-GDP ratios in south korea  were far higher than those in argentina.

I think that his arguments are correct and the possible evidence for his arguments are:

• During that time the argentina  did not use the foreign borrowing to develop a resource base in tradable goods, especially export industries.
• Also during that time Foreign borrowing by argentina often went to finance the private sector's accumulation of foreign assets, rather than an increase in export capacity hence these are the possible reasons why the argentina went to debt crisis.

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