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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.

Suggested Citation

  • Alvarez, Sebastian, 2014. "The untold story of the Mexican debt crisis: Domestic banks and external debt, 1977-1989," eabh Papers 14-03, The European Association for Banking and Financial History (EABH).
  • Handle: RePEc:zbw:eabhps:1403
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    References listed on IDEAS

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    1. 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.
    2. Lipson, Charles, 1981. "The international organization of Third World debt," International Organization, Cambridge University Press, vol. 35(04), pages 603-631, September.
    3. Bertola, Luis & Ocampo, Jose Antonio, 2012. "The Economic Development of Latin America since Independence," OUP Catalogue, Oxford University Press, number 9780199662142.
    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. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
    6. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
    7. 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.
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    1. New and interesting working papers
      by Robin in Cherokee Gothic on 2014-03-19 20:01:13

    More about this item

    Keywords

    Sovereign debt; financial crisis; Euromarkets; Latin America;

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
    • N86 - Economic History - - Micro-Business History - - - Latin America; Caribbean

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