Effective Solutions for the Economic Problem in Mexico

This true currency depreciation caused real wage levels in Mexico to plunge, which, in turn, prompted multinational companies (MNCs) to attempt to establish bases of production during the region to exploit the low actual wage levels (Dornbusch & Fischer, 1986).

From 1982 to 1986, the Mexican federal government reduced expenditures and raised taxes so that you can pay the interest on a country's external debt. Like a consequence, genuine wage levels decreases by 40 percent (Dornbusch & Fischer, 1986).

In July 1986, the International Monetary Fund (IMF) agreed to provide much more credit history to Mexico in the quantity that the country would lose being a consequence of falling world crude oil prices. This agreement by the IMF was to your period of 18 months extending in the end of 1987. Simultaneously, Mexico agreed to join the GATT (General Agreement on Tariffs and Trade). Joining the GATT committed Mexico towards the implementation of tariff reductions and towards introduction of policies that would lead a additional open economy (Dornbusch & Fischer, 1986).

In the 1990s, Mexico's political and economic leadership found that, frequently, the world merely does not jobs as economists postulate that it will. Mancur Olson (1996), writing inside the Journal of Economic Perspectives, defined the economic logic that need to underlie the initiatives of federal government in efforts to create and effective market economy.

The voracious appetite in the United States along with other industrialized nations for investments in emerging markets was initially interpreted being a reaction to opportunities made by economic reforms. The explanation was that investors had realized the advantages of diversifying the risk in their portfolios by spreading them internationally, and emerging markets provided the opportunity to do so. The Mexican crisis showed that the prospect of high yields instead of prudence motivated this internationalization. Investors were seeking abroad for the high returns that they have been not having at home, given the bearishness of financial markets inside the United States, Japan, and Europe. All it took to reduce the interest of investors inside the rewards of international diversification was for ones U.S. Federal Reserve Board to raise interest rates or to your Mexicans to devalue their peso (p. 126).

 

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