Essay on Mexican Economic Crisis - 862 Words

After nearly a decade of stagnant economic activity and high inflation in Mexico, the Mexican government liberalized the trade sector in 1985, adopted an economic stabilization plan at the end of 1987, and gradually introduced market-oriented institutions. Those reforms led to the resumption of economic growth, which averaged 3.1 percent per year between 1989 and 1994. In 1993 inflation was brought down to single-digit levels for the first time in more than two decades. As its economic reforms advanced, Mexico began to attract more foreign investment, a development helped by the absence of major restrictions on capital inflows, especially in the context of low U.S. interest rates. Indeed, large capital inflows began in 1990, when a†¦show more content†¦The financial sector was liberalized: lending and borrowing rates were freed, the forced channeling of credit was abolished, and bank reserve requirements were eliminated. 2. Banks were hastily privatized, in some instances with no due respect to ``fit and proper criteria, either in the selection of new shareholders or top officers (see Honohan 1997: 13, and Ort z 1997). It must be noted, however, that on average the banks remained in government hands for half of the expansionary period. 3. Several banks were purchased without their owners proceeding to their proper capitalization. Shareholders often leveraged their stock acquisitions, sometimes with loans provided by the very banks bought out or from other reciprocally collaborating institutions. 4. The expropriation of the commercial banks in 1982 contributed to their loss of a substantial amount of human capital during the years in which they were under the government. With these officials institutional memory migrated as well. 5. Moral hazard was increased by the unlimited backing of bank liabilities. 6. There were no capitalization rules based on market risk. This encouraged asset-liability mismatches that in turn led to a highly liquid liability structure.Show MoreRelatedEssay on The Economic Impact of the Mexican Peso Crisis1568 Words   |  7 Pagessaw the decline of the Mexican Peso, leading to what is now considered as the Mexican Peso Crisis. The crisis was characterized by the drastic decline in the value of the Mexican Peso. The Mexican Peso Crisis is considered significant because of its impact on other parts of the region, including Brazil. The following is a discussion of the causes and impact of the Mexican Peso Crisis. The events/causes that led up to the devaluation of the peso The Mexican Peso Crisis can be traced to the decisionRead More The Mexican Peso Crisis Essay1602 Words   |  7 PagesThe Mexican Peso Crisis This paper argues that the Mexican peso crisis of December 20 should have been expected and foreseeable. In the year preceding the crisis, there were several indicators suggesting that the Mexican economy and peso were already under extreme pressure. The economy bubble was ballooning to burst so much so that it was simply a crisis waiting to happen. Evidences Signaling the Crisis 1.  Ã‚  Ã‚  Ã‚  Ã‚  Decreasing Current Account Deficit versus Increasing Capital Account Balance Read MoreCauses Of The Mexican Peso Crisis965 Words   |  4 Pageslittle mistakes to bring Mexico’s economy down. The Mexican peso crisis started because of the U.S. influence towards Mexico’s currency. The U.S. dollar has a significant value, and after the huge increased it had during the end of the year of 1994, the Mexican economy went down. People were choked and panicking, and investors were flying out of the country, making things even worse. What is the Peso Crisis? To begin with, the peso crisis started in December 1994 because of the sudden devaluationRead MoreSocioeconomic Aftermath Of The Crisis1883 Words   |  8 PagesSOCIOECONOMIC AFTERMATH OF THE CRISIS Despite the overall success of the International Monetary Fund and the United States to prevent additional contagion from the Mexican peso crisis throughout the broader global financial systems, the crisis nevertheless proved devastating to the Mexican economy and its population. The devaluation of the peso and capital flight plunged the Mexican economy into a deep recession, national GDP dropped by 6.2% throughout 1995, and multiple banks collapsed as poorRead More1994 Mexican Currency Crisis4565 Words   |  19 Pagesimpact of, and the measures taken in response to the Mexican currency crisis of 1994-1995. The first objective is to assess the reasons for the crisis. Why did Mexico, a once immensely desirable investment destination become the bain of the international financial community following December 1994? The second and chief objective is to assess the impact of the crisis on the foreign exchange and stock markets. The report answers why the crisis adversely affected the Latin American market indicesRead MoreThe Mexican Peso Crisis2721 Words   |  11 Pagesthe currency into a downward spiral over the succeeding months in what became known as the Mexican Peso Crisis. A currency crisis is defined by a sharp and unexpected decrease in the value of the currency. This was precisely the case in Mexico, losing over 60% of its value in less than four months. The drastic nature of the crisis came as a surprise to many because of the unprecedented success of the Mexican economy in the years before. Mexico had curbed its inflation, posted very impressive growthRead MoreEssay on Mexican Peso Crisis: Irregularities of Deregulation2897 Words   |  12 PagesMexican Peso Crisis: Irregularities of Deregulation It is one thing to liberate an economy or a market; it is another to lift all regulations on such market. Economic liberalization should be done in an appropriate, intelligent manner. The lack of proper regulation can lead to a snowballing effect where a seemingly trivial matter can lead up to a terrible outcome. This was the case of Mexico in 1994 where birth was given to the â€Å"Tequila Effect†. What were the conditions in the country thatRead MoreThe Mexican Peso Crisis2040 Words   |  9 Pagesexternal value to plummet. In this paper I will analyze the build up leading to the Mexican peso crisis â€Å"Tequila crisis† of 1994. Explaining the cause and effect of the crisis as well as the economic and political impact; emphasizing on its interactions with the International Monetary Fund (IMF). To understand the Mexican peso crisis with regard to the domestic economy one must understand the history that led to the crisis. In the 1960s the economy was structured around industrialization. Mexico’s economyRead MoreInternational Monetary Fund Role : Imf1275 Words   |  6 Pagestheir website (www.imf.org), the International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The organization was created in 1945 and is governed by and accountable to the 188 that make up its near-global membership. Some notable countries that are part of the IMF are the United States, JapanRead MoreThe Procter Gamble Company3911 Words   |  16 Pagesand name: GRA 6544 – Multinational Corporate Finance Hand out date: 11.09.2012 Hand in date: 25.09.2012 Study place: BI Oslo Table of Contents Abstract: ii 1. Mexican economic conditions 1 a. Change in Mexican economic and political conditions during the 1970s and 1980s 1 b. Mexico’s economic and political climate in 1991 2 2. Financing options 2 3. Financing risk, foreign exchange risk and business risk 8 4. Attractiveness of Mexico’s capital market 9 5. Conclusion: