The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98
AbstractIn this paper we analyze the evolution of the Mexican economy between 1995 and 1998. The remarkable quick recovery seen in aggregate activity has not been uniform across the economy. The tradable sector has grown strongly, while the non-tradable sector has recuperated only sluggishly. This asymmetric response is intimately linked with the severe credit crunch that Mexico has experienced since 1995. Although fresh domestic bank lending dried up, tradable firms obtained financing in the international capital market. This was not the case in the non-tradable sector. A phenomenon that has gone hand in hand with the credit crunch is the steady increase in the share of non-performing loans. We analyze the reasons for this increase, the rationale for the partial bailout policy adopted in 1995, and we investigate why this policy stance did not solve the banking problem. An important lesson is that non-performing loans are unlikely to disappear on their own, even under a high GDP growth scenario. Furthermore, the existence of non-performing loans presents an obstacle for the banking system to adequately perform its functions. This raises the question of whether an alternative strategy under which all non-performing loans were recognized at once and the fiscal costs were all paid up-front would have been preferable.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7042.
Date of creation: Mar 1999
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Anne Krueger & Aaron Tornell, 1999. "The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98," Harvard Institute of Economic Research Working Papers 1872, Harvard - Institute of Economic Research.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001.
"Lending Booms: Latin America and the World,"
Journal of LACEA Economia,
LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Gourinchas, Pierre-Olivier & Landerretche, Oscar & Valdés, Rodrigo, 2001. "Lending Booms: Latin America and the World," CEPR Discussion Papers 2811, C.E.P.R. Discussion Papers.
- Pierre-Olivier Gourinchas & Rodrigo Valdes & Oscar Landerretche, 2001. "Lending Booms: Latin America and the World," NBER Working Papers 8249, National Bureau of Economic Research, Inc.
- M. Ayhan Kose & Christopher M. Towe & Guy Meredith, 2004. "How has NAFTA Affected the Mexican Economy? Review and Evidence," IMF Working Papers 04/59, International Monetary Fund.
- Carrasco, Vinicius & Salgado, Pablo, 2014. "Coordinated strategic defaults and financial fragility in a costly state verification model," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 129-139.
- Perez-Batres, Luis A. & Eden, Lorraine, 2008. "Is there a liability of localness? How emerging market firms respond to regulatory punctuations," Journal of International Management, Elsevier, vol. 14(3), pages 232-251, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.