Introduction: This article mainly focuses on the historical context and causes of the debt crisis in the late 1970s and 1980s. The debt crisis was known as financial crisis and defined as a crisis point of a country The accumulation of foreign debt exceeds its earning capacity and the country has no ability to repay the debt. The ready identification of the debt crisis was Mexico's inability to service its $80 billion outstanding debt. And the situation continues to worsen and a year later, in October 1983, 27 countries with debts of $239 billion had renegotiated their debts or were in the process of doing so. Areas of total indebtedness were greatest in developing or third-world countries and could be divided into three groups: Latin America, East Asia, and sub-Saharan Africa. East Asian countries include South Korea and Thailand, which were not involved in the debt crisis and will repay their debt later. On the other hand, Latin American countries were the most significant group of debt crises as 16/27 nations were from Latin America, and four major ones – Mexico, Brazil, Venezuela and Argentina – had debts with commercial banks of $176 billion, or about 74% of the debt. the total outstanding debt of the least developed countries. And the crisis is often known as the “lost decade”. This essay would mainly focus on the reasons why Latin America was involved in the debt crisis. Outline: According to the traditional view, the main causes of the debt crisis have been divided into two main parts: External Internal factors include oil price shocks, fluctuating interest rates and capital flow. Domestic factors include the inefficient use of government policies, including indebtedness and trade policy. However, there is another point made by Susan George who explored the interconnected web of national banks, Third World elites and... .... middle of paper ...... changes in interest rates of market. Borrowers take on the risk of rising interest rates. However, with the low interest rate in the 1970s, the problem was overlooked (Pollin, 1989 and George, 1988). Available from: http://www.fdic.gov/bank/historical/history/191_210.pdf [Accessed: 1 May 2010]. George, S. (1988), A Fate Worse Than Debt, Penguin Books, London. Pollin, R. (1989), A fate worse than debt: the global financial crisis and the poor. Available from: Monthly Review Foundation, website: http://www.tni.org/inthemedia/fate-worse-debt-world-financial-crisis-and-poor [Accessed: 6 June 2010]. Cuddington, J. T. ( 1989 ), "The extent and causes of the debt crisis of the 1980s". In Diwan, I. Addressing the Debt Crisis, World Bank Publications