Mexican Peso Crisis Essay
In 1994, the devaluation of the Mexican peso against the U.S dollar was reduced by 14%. This turned out to be a crisis because most of the fund managers liquidated funds due to fear of loosing investments; peso crisis was extended to Latin American and Asian financial markets., In 1995 alone prices increased by 35% and output was decreased by 6.2%, also Mexico’s per capita GDP fell by 5% during the crisis. In order to help restore financial stability, the United States, arranged a $50 billion bailout package in January 1995, to be regulated and controlled by the International Monetary Fund (IMF) with assistance from the G7 and the Bank for International Settlements(BIS). Of the $50 billion, $20 billion came from the United States, $17.8 billion
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Instead of adding to their debts, Mexico would have been forced to renegotiate an extension of its debt’s maturity with its creditors and sell its assets to pay them off. Such measures would have restored market confidence in Mexico. Instead, the Mexican government was let off the hook, and Mexico’s debt holders collected their money back. On the other hand, I believe that IMF assistance gives countries a choice. In the absence of IMF funding, the country would have no choice but to adjust, making the solution more difficult. In conclusion, I believe some degree of moral hazard is …show more content…
Like any other loan agreement, the lender would have some form of collateral from the borrower just in case the borrower fails to repay the loan without any other complicated policies. The IMF uses the loan in order to benefit themselves and to make changes to fiscal and monetary policies in the receiving countries. Their prime aim is not to assist countries but rather to make a profit of some benefit out of a bad situation. The IMF need to start putting their words into action by actually helping countries fix their financial debt instead of adding to it. First think of the crisis the country is in and how best you can assist. If the countries best interest is considered then the blame cannot be put on the
Instead of adding to their debts, Mexico would have been forced to renegotiate an extension of its debt’s maturity with its creditors and sell its assets to pay them off. Such measures would have restored market confidence in Mexico. Instead, the Mexican government was let off the hook, and Mexico’s debt holders collected their money back. On the other hand, I believe that IMF assistance gives countries a choice. In the absence of IMF funding, the country would have no choice but to adjust, making the solution more difficult. In conclusion, I believe some degree of moral hazard is …show more content…
Like any other loan agreement, the lender would have some form of collateral from the borrower just in case the borrower fails to repay the loan without any other complicated policies. The IMF uses the loan in order to benefit themselves and to make changes to fiscal and monetary policies in the receiving countries. Their prime aim is not to assist countries but rather to make a profit of some benefit out of a bad situation. The IMF need to start putting their words into action by actually helping countries fix their financial debt instead of adding to it. First think of the crisis the country is in and how best you can assist. If the countries best interest is considered then the blame cannot be put on the