Mexico after the debt crisis: is growth sustainable?

This paper argues that, in the case of Mexico's debt and debt service reduction agreed with London Club creditors, the ‘smoothening’ of the external transfer had a much stronger domestic impact than the reduction of debt/debt service per se. The financing of the expansion that ensued following...

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Bibliographic Details
Published in:Journal of development economics 1995-06, Vol.47 (1), p.155-178
Main Authors: Oks, Daniel, van Wijnbergen, Sweder
Format: Article
Language:English
Subjects:
Debt
Debt relief
Debt service
Development economics
Economic crisis
Economic models
Economic theory
Exports
External debt
Foreign investment
Macroeconomics
Mexico
National debt
Private Saving
Propensity to save
Studies
Sustainability
Sustainable development
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Summary:This paper argues that, in the case of Mexico's debt and debt service reduction agreed with London Club creditors, the ‘smoothening’ of the external transfer had a much stronger domestic impact than the reduction of debt/debt service per se. The financing of the expansion that ensued following the debt deal was facilitated by strong foreign capital inflows. However, along with the capital inflow, there was a sharp decline in private saving which raised concerns about the sustainability of the recovery. The paper argues that, even if domestic saving increases from the low level reached in 1992, the transition to a sustainable growth path is unlikely to be smooth, as the slowdown in consumption growth is likely to be contractionary. The net outcome will depend on how investment and net exports respond. The analysis of cyclical and structural factors of investment and net exports leads to a cautious optimism over the medium term.
ISSN:0304-3878
1872-6089
DOI:10.1016/0304-3878(95)00008-9