Incomplete Adjustment: Fiscal Policy, Private Savings and Current Account Deficits in Mexico since 1982

  • Angel Calderón-Madrid
Part of the International Finance and Development Series book series (IFD)

Abstract

Within a time span of twelve years, Mexico shocked international financial markets twice. In 1982, Mexico’s announcement that it was unable to service is external debt created fears about a global financial crash and marked the beginning of the Third World debt crisis. At the end of 1994, the country’s peso crisis led the US government and the IMF to put together an unprecedented rescue package of US$50 billion, fearing that a ‘tequila effect’ might spread across Latin America and affect the stability of international financial markets. To many observers both shocks came as a surprise. The main body of this chapter was written before the outbreak of the peso crisis. Without predicting the crisis that took place, the analysis emphasized the structural weaknesses of the adjustment policies undertaken since 1987. Symptoms of these weaknesses — declining private savings and an increasingly fragile domestic banking system — made main elements of the heterodox adjustment programme, such as the use of fixed policy targets (i.e. the nominal exchange rate), unsustainable over time.

Keywords

Income Marketing Posit Defend Lost 

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Copyright information

© Institute of Social Studies 1997

Authors and Affiliations

  • Angel Calderón-Madrid

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