United States: Central Bank Swaps to Mexico, 1982

In 1982, Mexico faced a balance of payments crisis, as rising interest rates and falling oil revenues made it increasingly difficult for the government to meet interest payments on its accumulated foreign debt. This case describes three currency swap facilities that the US government used to provide dollar funding to the Bank of Mexico (BoM) during this crisis: (1) a standing, USD 700 million swap facility with the Federal Reserve, which the BoM drew upon four times between April and August 1982; (2) a one-week, USD 1 billion swap facility with the US Treasury, which the BoM drew upon once in mid-August 1982; and (3) a USD 925 million Special Combined Credit Facility with the Fed and US Treasury, which the BoM drew upon several times, starting in August 1982, and repaid in August 1983. The purpose of the swaps was to serve as a bridge to International Monetary Fund (IMF) funding that US and Mexican officials hoped would address Mexico's macroeconomic problems. On December 23, 1982, the IMF approved a rescue package worth USD 3.75 billion for Mexico. This case is unusual because of the significant collaboration it entailed among the US Treasury, the Fed, and other government agencies; most lenders in the Yale Program on Financial Stability series examining central bank swap lines are central banks acting alone. This case also represents the first time that the US Treasury extended loans with a maturity of more than six months from its Exchange Stabilization Fund.