Abstract: From the middle of the eighties Mexico undertook a far-reaching process of macroeconomic stabilisation and structural economic reform intended to improve its prospects by allowing economic activity to be determined increasingly by mar ket forces. This process included the strengthening! of public finances, deregulation of economic activity, privatisation, financial reform, the restructuring of its external debt, trade liberalisation and the signing ofNAFTA. After almost a decade oflow growth and high inflation, these policies allowed economic activity to recover (averaging 3.1% between 1989 and 1994) and in 1993 brought inflation down to single digit levels for the first time in more than twenty years. This performance, which earned the country international recognition, suggested that Mexico was ready to enjoy the fruits of economic growth with stability. Economic reforms had increased the country's attractiveness to investors and attracted unprecedented capital flows, which between 1990 and 1994 reached US$104 billion. Hence, it came as a shock, not only to Mexicans but also to most observers worldwide, that this model economy could fall into a crisis of the depth and mag nitude of that of last December. The severity of the financial crisis, which was felt well beyond Mexico's bor ders, has given rise to many questions. Several explanations have been proposed of how the devaluation crisis came about and how it could have been averted or its negative effects· minimised. This paper will review the three main hypotheses that have been advanced. The first sees the problem as arising from an unsustain able external position. The second one considers lax economic policies as the underlying factors leading to the crisis. Finally, the third view holds that the crisis originated in a series of unpredictable political and criminal events that changed market sentiment towards Mexico. The paper presents some broad issues that the crisis raises as well as a conclusion.
Publication Year: 1996
Publication Date: 1996-01-01
Language: en
Type: article
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