In December 1982, the IMF approves a USD 3.8bn loan to the Mexican government. This resulted in rising US dollar exchange rates, increasing the difficulty of servicing debt. From 1988 to 1993, with the active support of the IMF, Mexico strengthened the process of macroeconomic stabilization and structural transformation that began in the wake of the 1982 debt crisis. The Mexican peso almost collapsed as a result of this crisis. Mexico: A Beginning of the Debt Crisis in 1980’s 1980’s was a watershed period for the Latin American economies especially Mexico that faced major financial and economic crisis from the late 1970s to 1980s. The government also initiated a process of financial market liberalization. This increase in currency revenue should have prevented Mexico from borrowing. Who was really responsible for the Mexican debt crisis? The concentration of wealth and of a large part of the national assets in the hands of a few Mexican and foreign industrial and financial corporations is staggering. Economic growth is defined as the variation of the GDP from one period to another. In the 1980s there was a major international debt crisis because several less developing countries in Latin America and Africa defaulted on their debt … Consequently, the peso depreciated around 50%. Attention! CADTM International This article shows that the link between financial crisis and international interbank lending is not a new phenomenon; a similar trend can be observed in the Mexican banking sector during the run-up to its 1982 debt crisis. As a result, the real exchange rate appreciated steadily. In May 1989, foreign investment regulations were considerably relaxed and made more transparent. 33 years later, in 2003, it had multiplied by 25, reaching 77.4 billion (public and private external debts together amounted to 140 billion). Therefore, many feared that the banking system would collapse. The G7 summit is currently taking place in Williamsburg, United States. In 1982, contractions in investment and consumption negatively contributed to economic growth (see figure 3). by Mexico accepted. The most important one (6,57% of the votes) is led by Belgium. New loans had to come both from commercial creditors and the official lending institutions. Buffie, E.F. (1989), Mexico 1985-86: From Stabilizing Development to the Debt Crisis. In the early months of 1982 the World Bank still claimed that the increase in the Mexican GDP Manoel Barbeitos, Series: 1944-2020, 76 years of interference from the World Bank and the IMF (Part 25), 9 November, The “Brady plan” substantially improved Mexico’s ability to service its external debt by reducing interest and principal payments (Dornbusch, 1994). Table 3 shows the evolution of World Bank loans to Mexico. 16, No. Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907. Interest rates The director of the IMF, Jacques de Larosière, told the Mexican authorities that the IMF and the BIS were willing to grant currency loans in December 1982 on the twofold condition that the money be used to refund private banks and that Mexico implement drastic structural adjustment Approximately three-quarters of the interest payments were tied to US interest rates and the London Interbank Offering Rate (LIBOR), which repriced every six months. U.S. Debt Crisis of 2008 Explained . Total foreign debt increased sharply to 31% of GDP in 1976. During 1992 and 1993, Mexico’s current account deficit was US$48 billion, while private capital flows were US$57 billion2. External Debt in Mexico averaged 64471.75 USD Million from 1980 until 2020, reaching an all time high of 463847.50 USD Million in the fourth quarter of 2019 and a record low of 0.70 USD Million in the first quarter of 1980. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. Net transfer remained positive because Mexico did use IMF loans to repay private banks. Loans from countries of the North to Mexico and repayments (in million dollars). In the same year, worldwide interest rates reached record levels. Yet in those years Mexico repaid old loans. Historically, this has been the US’s objective since the 19 th century. The repayment of the capital is not usually made in equal instalments. Maria Elena Saludas In return, the government of Mexico expected to put in place certain monetary policies and fiscal controls as well as … September 1st, 1982The government nationalizes Mexico’s private banking system in order to prevent bankruptcy of the private banking sector and imposes comprehensive exchange controls. 5 million dollars, that is a total of 15 million dollars. After years of accumulating external debt, risen world interest rates, the worldwide recession and sudden devaluations of the peso caused external debt payments to rise sharply. But at the end of 1986, Mexico is still saddled with a huge foreign debt amounting to 78% of GDP and inflation exceeds 100%. Non-oil revenues even decreased, principally due to the government’s reluctance to raise administered prices (Buffie, 1989). In the same year, world market oil prices collapsed, adversely impacting the economy’s economic performance. He of course refrained from divulging that the 6 billion dollars would be used to pay back foreign bankers. In 1981 and 1982 capital flight was estimated at respectively 3.4% and 4.2% of GDP. On the other hand, if a country’s balance is in the red, that country will have to turn to the international lenders to meet its funding needs. Shortly thereafter, dozens of other countries followed suit. Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. It was the time of the Third World international debt crisis and Mexico was the country (and Latin America the region) at the heart of the storm. It also acts as a bank for central banks. Lending money to Mexico was the World Bank’s way of keeping its hold on Mexican authorities. Weintraub, R.E. Historically, this has been the US’s objective since the 19th century. Yet repayments were still well underway. Finally, details of the debt restructuring and reforms are discussed. In the five years after the crisis, Mexico’s terms of trade declined by 42.2%. Its first mission was to support the new system of standard exchange rates. The World Bank’s message consists of repeating that even when everything suggests there is cause for alarm, actually all is well, the situation is excellent, and you should just contract further debts. Aware that almost all available currency in the Mexican Treasury had been used to pay back the debt, they considered it was time to reduce their loans. What would a court say if such behaviour had resulted in loss of life? Use "AND" and/or "OR" to get better search results. Mexico's crisis illustrates this: it can be understood only in the context of the country's economic progress of the past decade. 0.5 million dollars, giving a total of 10.5 million dollars. Every word of this prediction was contradicted by facts! With an extensive trade reform, Mexico opened up the economy. There were none between 1978 and 1981. In August 1982, Mexico stunned the financial world by announcing that it would not be able to pay back its debt on time. Debt and privatization. Eric Toussaint , The first two are external factors and Mexico was helpless against them. FEDFederal Reserve It also acts as a bank for central banks. Could you maybe inform us why you like this article? In October 1979, when Paul Volcker, then chairman of the US Federal Reserve We trust the day is approaching when the Mexican people will be able to win back their freedom to decide their own future. In a historical perspective it is evident that the road to overindebtedness in the 1960s and 1970s, the explosion of the debt crisis in 1982 and the way it was managed in the following years marked a radical break with the progressive policies implemented from the start of the Mexican revolution in 1910 to the 1940s with Lazaro Cardenas as president. Exclude search terms by putting a "!" Net transfer remained positive because Mexico did use WB loans to repay private banks. He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates. Given that we are now ruled by a deeply entrenched corporate-financial-political nexus I think it’s interesting to examine one of the episodes from recent history that has contributed to this situation. The IMF assisted with three financial packages, which were accompanied by structural reforms. Structural Adjustment Emilie Paumard Series: 1944-2020, 76 years of interference from the World Bank and the IMF (Part 18), 4 August Debt and privatization. The roots of the current crisis … The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries. Generating the PDF can take several minutes to complete. From mid-1980 to early1982, the peso gradually depreciated 16%, while annual inflation recorded nearly 30%. In early 1982 the peso was left to float freely until June 1982. Since the 1982 crisis Mexico has lost control of its destiny. Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans. [1] D. Kapur, J. Lewis, R. Webb, 1997, vol. When the second oil shock occurred in 1979, oil prices skyrocketed. , The law allowed the US to provide a $50 billion bailout package to Mexico to be administered by the IMFsupported by the Bank for International Settlement and the G7. Jean Nanga Private banks of the North loaned exponentially higher amounts to developing countries, starting with Mexico. Table 5 shows the evolution of loans granted by the most industrialized countries. 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