CIAO DATE: 7/00

As Mexico Imploded: Action and Inaction in the United States

Abstract

In the wake of the Mexican peso crisis and its disastrous consequences for the Mexican people, all foreign actors, public and private, reacted — many in panic and others as rescuers. What did the foreign actors know, when did they know it, and what did they do? The rescue operation mounted jointly by the U.S. government and the IMF, with contingent backup from many central banks operating through the Bank for International Settlements, made whole most investors in tesobonos. In turn, the issue of moral hazard was raised: why would governments and international institutions rescue investors seeking relatively high returns? This study covers U.S. and other foreign analyses of Mexico's financial status prior to the 1994 devaluation, actions that were taken or not taken on the basis of those analyses, reactions following the devaluation, and the motivations for the peso rescue package.

View Full Text