Foreign Debt: The Mexican Experience

Vinod K. Aggarwal

Relazioni Internazionali, 1990

On February 4, 1990, Mexico and its creditors signed an international debt accord that was both hailed and assailed. In a letter to the International Monetary Fund, the Finance Minister of Mexico, Pedro Aspe, estimated that the deal would save Mexico almost $4 billion a year through 1994. At the same time, Jeremy Morse, chairman of Lloyds Bank, and Kit McMahon, chairman of Midland Bank estimated that the package would “save the country less than $1 billion in external interest payments each year.”1 The significant difference in these numbers for the first accord completed under the so-called Brady initiative (proposed on March 10, 1989) reflect alternative estimates about the benefits of the complex plan. The agreement included interest rate reduction, principal reduction, new money, and partial guarantees from the Japanese, World Bank, and IMF.

Although this article briefly discusses the Brady Initiative and the political economy of the Mexican rescheduling agreement, its major focus is on previous Mexican debt rescheduling efforts going back to the 1820s. As we shall see, many of the proposals which are currently in vogue have been tried in the past. A historical perspective is helpful in examining the prospects for a “definitive” settlement of the debt. In particular, we shall see that excessive euphoria about the success of any single plan is unwarranted and detracts from a long-term concerted effort to resolve both a debt and development problem.

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