The mexican peso crisis essay
Why such exceptional support?
Mexican peso crisis effects
The crisis was characterized by the drastic decline in the value of the Mexican Peso. If the central bank were not amassing dollar reserves, the parity would now be much closer to 7 than 8 pesos to the dollar. This package has three elements. With the situation under control in Mexico and Argentina, the systemic risk was well-contained. Problems certainly remain, but if the authorities continue to implement the program steadfastly and consistently, Mexico's economy is headed toward recovery, and given the acceleration of reforms in this program it should emerge from the crisis--and let me emphasize this--stronger than before. These efforts are as essential as they are challenging, because the increasing globalization of the world economy makes effective international monetary cooperation at the global level--an effective IMF--more important than ever before. The contradiction is obvious: avoiding a market-driven appreciation of the peso is inconsistent with claims that there is no predetermined level of the parity under a floating regime see Salinas-Lesn b. By the end of , devaluation was inevitable. To achieve these goals, the program is centered on a further tightening of the fiscal position and a strong monetary policy. Perhaps the war was inevitable due to the idea of Manifest Destiny - Americans thought they had the divine right to extend their territory.
In inflation was brought down to single-digit levels for the first time in more than two decades. The crisis and its resolution have confirmed the urgency of action to enable the Fund to provide more help for countries in both preventing and resolving such crises.
The first objective is to assess the reasons for the crisis. And it is no accident that this crisis hit one of the most successful developing economies. But Mexico's crisis showed that further adaptations are needed to make surveillance strong enough to minimize the risk of the eruption and spread of crises in the new global environment: first, data: stricter requirements need to be applied concerning the regular and timely communication by countries to the IMF of data on key economic indicators; and the Fund also needs to make more use of financial market data in monitoring developments.
The drastic nature of the crisis came as a surprise to many because of the unprecedented success of the Mexican economy in the years before. A fundamental lesson embodied in those examples is that other factors must be assessed into competitiveness equations--for instance, levels of worker productivity, capital flows, the regulatory environment, the impetus of reform, import-led modernization, and, most important, trade liberalization.
Consequences of the tequila crisis
The former claim entails that the parity will be what it will be--that is, what the foreign exchange markets dictate in accordance with supply and demand, regardless of whether this results in an appreciation or depreciation of the peso. It was able to do so in the case of Mexico, by resorting to its exceptional circumstances clauses. Economic liberalization should be done in an appropriate, intelligent manner. The economy bubble was ballooning to burst so much so that it was simply a crisis waiting to happen. In trade relations as in international monetary relations, global cooperation is essential: regional cooperation is important, but it is not enough. Capital Flows and Floating Exchange Rates According to Meigs, in a monetarist framework, the increasing divergence in price levels between Mexico and the United States meant "the exchange rate must eventually adjust in order to restore purchasing power parity of the peso. The crisis arose in the way it did partly because the scale of the problem only became apparent at the time of the devaluation, and took the financial markets by surprise.
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