The explanation for the poor performance of Latin America in the 1980s, as compared with the 1930s, is found in the international response to the crisis. During the 1930s, external debt default opened the space for counter-cyclical macroeconomic policies. In contrast, during the 1980s, Latin America faced strong pressures to avoid prolonged defaults and was forced to adopt contractionary macroeconomic policies. Averting default helped the U.S. avoid a banking crisis, but at the cost of a lost decade of development in Latin America. Two basic implications are that there is a need to create an international debt workout mechanism and that international financial institutions should never be used to support the interests of creditor countries. Published by the Initiative for Policy Dialogue at Columbia University.