External debt in Central America

The countries of Central America did not manage to escape the effects of the crisis of the 1980s, despite having pursued a relatively conservative external financing policy. Although their external debt was mainly public or backed by the government, the increase in interest rates and deterioration in the terms of trade created considerable external imbalances which forced them to apply stringent adjustment policies. Economic activity weakened and the countries had to choose between finding new sources of financing or transferring the whole impact of the crisis to the domestic economy.