the peso crisis - i a monetary crisis?. the peso the peso: advertises its own contradictions
TRANSCRIPT
The Peso Crisis - I
A Monetary Crisis?
The Peso
• The Peso: Advertises its own contradictions
The Peso
• Money with Emiliano Zapata!
The Peso
• Zapata fought for campesinos’s land and corn, against money and its power
• Even on reverse side
• Zapata listening to a fellow campesino
• On left & background: gears, factories & smokestacks -- threaten peasant life
Crisis = Devaluation?
• What is generally meant by “the Peso Crisis” is the sudden drop in the value of the peso in late 1994.
• But… is that all there was to it?• No, the drop was the result of a year of
crisis and drama in Mexico• That began with the Zapatista rebellion on
January 1, 1994
Chronicle
• Dec 13: EZLN Letter/Warning• Dec 18: EZLN Breakout• Dec 19: Zedillo Calls Meeting, Jaime Serra
says 15% devaluation• Dec 20: Serra announces devaluation,
government blames EZLN• Dec 21: fight from peso, drops 40%, peso
floated
Dirty Float
• prior to Dec 21– peso was “floating”, no official price– but state “supported” its value through intervention
• Intervention:– spending foreign exchange reserves to buy pesos
• impossible to sustain– provoking increased demand for pesos by foreign
speculators• selling off Mexican government assets• open financial markets
Free Float
• Devaluation on Dec 20 – meant no more government intervention– revealed government couldn’t avoid letting
price drop– it was running out of reserves
• Devaluation– revealed govt’s failures
• financial• jawboning• political
Consequences - I• Inflation
– prices of imported goods rose, not just luxury goods but basic food stuffs, e.g., corn for tortillas
• High Interest Rates– state policy to stem outflow of hot money– interest rates on state bonds rose to 50%– response to Fed increase of US rates
Consequences - II
• Real Wages Fell– immediate result of inflation caused by
devaluation– fall in standard of living for those with no
savings, eventual fall for almost everyone– higher interest rates reduced consumer
expenditures on durables
Consequences - III
• Increased Unemployment– much Mexican industry was dependent on
imported intermediate materials – the devaluation drove up prices of imports and
raised business costs dramatically– high interest rates drove smaller businesses
bankrupt as loan rates floated up w/offical rate
• Increased Migration North– worsening situation in Mexico increased
differential between Mexico & U.S.
Consequences -IV• Exports would increase
– exports now cheaper for foreigners to buy because pesos cheaper to buy
– except for those dependent on large imports of intermediate goods whose prices rose
– export boom + reduced wages would draw some MNC direct investment
• Imports would decrease– imports now more expensive– US exports would decrease (undercut NAFTA)
--END?--