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Mexico

 
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Mexico

External Debt

By the early 1990s, Mexico's debt crisis had largely passed, although the country remained saddled with huge debts. Capital inflows were more than sufficient to service the debt through 1993 as portfolio and foreign direct investment reached unprecedented levels in response to liberalization and the successful negotiation of NAFTA. Despite the use of funds from privatization to retire old public-sector debt, total external debt continued to grow during the early 1990s as current account deficits soared after 1992.

After reaching a low of US$112 billion in 1992, Mexico's total external debt rose steadily thereafter, reaching an estimated US$158 billion in 1995. The large increase during 1995 in Mexico's total public indebtedness resulted in part from loans contracted in the wake of the new peso collapse of late 1994. In early 1995, the United States government made US$20 billion available to Mexico from the United States treasury department's Exchange Stabilization Fund, the Bank for International Settlements contributed US$10 billion, and the IMF offered US$8 billion in standby credit and US$10 billion of other funding.

In 1993 Mexico's total debt service amounted to US$21 billion, including US$14 billion in principal payments and US$7 billion in interest payments. Mexico's total external debt amounted to 356 percent of GDP in 1993.

Inflation

Control of inflation was the main policy objective of the de la Madrid and Salinas administrations between 1987 and 1993, despite the cost of this policy in terms of the currency's continued real appreciation and the resultant need to maintain high interest rates to attract foreign investment and deter capital flight. The government made steady progress against inflation following the PSE's introduction in late 1987 (replaced in 1989 by the PECE, which was revised and updated annually between 1989 and 1993). Largely as a result of the wage and price restraints included in these pacts, inflation fell from 159 percent in 1987 to 20 percent in 1989. In 1990 it rose slightly to 30 percent (double the initial target of 15 percent), as the government eased credit, eliminated price subsidies, and realigned public-sector prices as well as some private-sector prices. Thereafter, the inflation rate fell steadily from 23 percent in 1991 to 7 percent in 1994, Mexico's first single-digit inflation rate in twenty years.

Consumer price inflation rose sharply between January and April 1995 in response to the December 1994 new peso devaluation, then abated between May and August as the new peso appreciated. When the currency came under renewed pressure during the last four months of the year, however, inflation rose more quickly. It soared as high as 52 percent (Mexico's highest inflation rate since 1987) by December 1995, although it averaged 35 percent for the year. A 21 percent increase in the minimum wage and monthly adjustments of public prices contributed to the high inflation. Consumer prices rose by 11 percent during the first four months of 1996, despite Mexico's continued recession and the new peso's real appreciation. The government conservatively projected an inflation rate of 21 percent for all of 1996.

Data as of June 1996

Mexico - TABLE OF CONTENTS

  • The Economy

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