Answer: 1. Coffee
Explanation: Coffee was one of the most important export products for many South American countries prior to the Great Depression. Countries such as Brazil, Colombia, Venezuela, Ecuador, and Peru depended heavily on coffee exports for their foreign exchange earnings and economic growth. Coffee was also a major source of employment, income, and tax revenue for these countries.
However, coffee was also a very vulnerable commodity to the fluctuations of the world market. Coffee prices were determined by the supply and demand of coffee producers and consumers, mainly in Europe and North America. Coffee production was also subject to climatic conditions, pests, diseases, and political instability. Therefore, coffee exports were prone to cycles of boom and bust that affected the economic and social conditions of the coffee-producing countries.
The Great Depression was a severe shock for the coffee industry in South America. The collapse of the stock market in 1929 and the subsequent economic downturn in the industrialized countries reduced the demand for coffee and other commodities. The prices of coffee fell dramatically from 22 cents per pound in 1929 to 8 cents per pound in 1931. The volume of coffee exports also declined from 2.6 million tons in 1929 to 1.8 million tons in 1932.
The decline in coffee exports had devastating effects on the economies of South America. The countries faced a severe shortage of foreign exchange, which limited their ability to import essential goods and services and to service their external debts. The governments also faced a fiscal crisis, as their revenues from export taxes and tariffs dwindled. The coffee sector also suffered from unemployment, poverty, social unrest, and political instability.
The governments of South America tried to cope with the crisis by adopting various measures, such as:
- Devaluing their currencies: This was done to stimulate exports and discourage imports by making domestic goods cheaper and foreign goods more expensive. However, this also increased inflation and reduced the purchasing power of the people.
- Imposing trade barriers: This was done to protect domestic industries and markets from foreign competition by imposing tariffs, quotas, subsidies, and exchange controls. However, this also reduced trade opportunities and provoked retaliation from other countries.
- Forming coffee agreements: This was done to stabilize coffee prices and regulate coffee production and trade by forming cartels or agreements among coffee-producing countries or with coffee-consuming countries. For example, Brazil signed an agreement with the United States in 1931 to restrict its coffee exports in exchange for a loan of $100 million. However, these agreements were often ineffective or short-lived due to lack of enforcement or cooperation.
- Diversifying their economies: This was done to reduce their dependence on coffee exports and develop other sectors of their economies, such as industry, agriculture, mining, or services. For example, Brazil promoted industrialization through import substitution policies that encouraged domestic production of manufactured goods. However, these policies required significant investment, infrastructure, technology, and skills that were often lacking or costly.
These are some of the ways that South American countries tried to help solve their economic problems caused by the Great Depression. However, none of these measures were sufficient or successful in restoring their economic prosperity or stability. It was not until after World War II that South America recovered from the effects of the Great Depression.
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