Chapter

Mexico: Trade and Financial Liberalization With Volatile Capital Inflows: Macroeconomic Consequences and Social Impacts During the 1990s

Jaime Ros and Nora Lustig

in External Liberalization, Economic Performance and Social Policy

Published in print May 2001 | ISBN: 9780195145465
Published online September 2007 | e-ISBN: 9780199783960 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780195145465.003.0007
 Mexico: Trade and Financial Liberalization With Volatile Capital Inflows: Macroeconomic Consequences and Social Impacts During the 1990s

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By the mid‐1980s, the Mexican economy was still suffering the consequences of the 1982 debt crisis, and these were compounded by the difficulties created by the collapse of oil prices in early 1986, but three years later, a turnaround had taken place. Following a successful heterodox stabilization program, which began in late 1987, a sharp reduction in domestic and external public debt, facilitated by a Brady agreement in mid‐1989, and financed with large privatization revenues, Mexico returned to the international capital markets, and its economy finally appeared to be on its way to recover economic growth and price stability after almost a decade of economic decline and high inflation. When the North American Free Trade Agreement (NAFTA) was approved in 1993, optimistic expectations became even more rampant; this chapter addresses the question of why the country that was supposed to enter a period of sustained prosperity, and one of the most successful emerging markets, found itself in the mid‐1990s immersed in the worst economic crisis in the last seventy years. In the first section, the balance of payments liberalization measures that preceded the episode of massive capital inflows of the early 1990s are reviewed, and its macroeconomic consequences discussed. The second section then examines how these macroeconomic developments were reflected in the labor market, the third section turns to the evolution of income distribution and poverty since the mid‐1980s, and a concluding section draws lessons from the Mexican experience, and discusses the prospects of the economy after the crisis.

Keywords: Brady agreement; capital inflow; economic crisis; economic recovery; income distribution; labor market; oil prices; poverty; privatization

Chapter.  14189 words.  Illustrated.

Subjects: International Economics

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