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The untold story of the Mexican debt crisis: Domestic banks and external debt, 1977-1989

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  • Alvarez, Sebastian

Abstract

In the years preceding the international debt crisis of the 1980s, international banks displayed a growing enthusiasm for lending to Mexico and other developing countries. During this period, Mexico's development and commercial banks got heavily involved in intermediating foreign finance with domestic final users. Although important, scholars have thus far neglected the role played by Mexican banks in international capital markets and in the country's external indebtedness process. This paper argues that the imbalances which Mexican banks incurred in running their international operations eventually brought them to the brink of bankruptcy once the crisis began. Given that the banks that were at risk represented a large share of the domestic market, this paper argues the whole Mexican banking system was threatened with collapse. The improved understanding of the banking system's exposure to and dependence on foreign finance provides new insights into Mexico's debt renegotiation outcomes and the nationalization of the banking system in the aftermath of the crisis. --

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Bibliographic Info

Paper provided by The European Association for Banking and Financial History (EABH) in its series eabh Papers with number 14-03.

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Date of creation: 2014
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Handle: RePEc:zbw:eabhps:1403

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Keywords: Sovereign debt; financial crisis; Euromarkets; Latin America;

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  1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  2. Jeffrey Sachs & Harry Huizinga, 1987. "U.S. Commercial Banks and the Developing-Country Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 555-606.
  3. Lipson, Charles, 1981. "The international organization of Third World debt," International Organization, Cambridge University Press, vol. 35(04), pages 603-631, September.
  4. Jeffrey Sachs, 1986. "Managing the LDC Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 397-440.
  5. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  6. Carlos F. Diaz-Alejandro, 1984. "Latin American Debt: I Don't Think We Are in Kansas Anymore," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 335-403.
  7. Bertola, Luis & Ocampo, Jose Antonio, 2012. "The Economic Development of Latin America since Independence," OUP Catalogue, Oxford University Press, number 9780199662142, October.
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  1. New and interesting working papers
    by Robin in Cherokee Gothic on 2014-03-19 15:01:13

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