Interpreting the History of Mexico’s External Debt Crises

Vinod K. Aggarwal

The International Debt Crisis in Historical Perspective, 1989

For analytical purposes, we can consider four epochs in international lending and rescheduling over the last 160 years. The first epoch begins in the 1820s and ends in the 1870s; the second overlaps in part with the first and runs from the 1860s to the onset of the first World War; the third from the interwar period to the post-World War II resolution of debt problems; and the fourth from the 1970s to the current debt negotiations. In all of these epochs, there have been important similarities with respect to the lending process, Mexico’s problems in servicing its debts, actors’ negotiation strategies, and the ultimate resolution of debt problems.

With respect to the lending and borrowing process, two common patterns emerge. On the supply side, the cycles of lending are related to the degree to which banks could float bonds among the public or were flush with deposits. Inadequate analysis by banks and bondholders of the long-term prospects for repayment by debtors appears to be the rule rather than the exception.

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