The Role of The IMF in 1997 Global Financial Crises

Global Financial Crises 1
Running head: GLOBAL FINANCIAL CRISES
The Role of The International Monetary Fund In 1997 Global Financial Crises
Asam Mustafa
15127 NE 24th St. #235
Redmond WA 98052
Asam004@qwest.net
Washington State University
Business school, the Center For Entrepreneurial Studies
Pullman, WA
April 29th 2005

ABSTARCT
This study is conducted through Washington State University business school, the
economic department (ECON-418). For WSU business students to integrate and apply theory
and principles learned in business education i.e. macroeconomic. This report effort presents a
discussion of the movements of portfolio capital in Mexico, Argentina and Thailand since 1989.
Additionally the report will examine the comparisons with what happened in the rest of East Asia
and Latin America by examining the contagion affect. And by making an assessment for the
factors affecting the demands by countries and region above for portfolio funds and the factors
influencing the supplies of these funds. Moreover, the report will analyze the relationships
between the balance on current account, the budget deficit and the exchange rate, as well as the
relationship between the exchange rate and interest rates with the inflows of portfolio capital in
these countries.
The Outline for Field Project Report
• The responding to the challenge, and the policies promoted by the (International
Monetary Fund (IMF) and World Bank that was introduced to Mexico, Argentina and
Thailand, all these countries seek efficient market-based systems that provide improved
social welfare and integration with the world economy. To achieve this, these countries
have adopted measures that are now the standard for economic reform regimes
worldwide, i.e. privatization, agriculture reforms, and the lowering of domestic barriers to
trade and foreign investment.
• The nature of the Asian financial crisis and the underlining causes of their global nature.
By examining was the Asian crisis in Thailand a result of an overvalued exchange rate,
excessive government borrowing, or too much consumption of import. Moreover, the
report will examine what precipitated the crisis in Mexico and Argentina.
• Mexican crisis in 1994 and Thailand financial crisis in 1997 to see if there is evidence of
such moral hazard. In addition, the paper will we will examine the concept of moral
hazard. Moral hazard can be present any time two parties come into agreement with one
another. Each party in a contract may have the opportunity to gain from acting contrary to
the principles laid out by the agreement. The risk that a party to a transaction has not
entered into the contract in good faith, has provided misleading information about its
assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate
attempt to earn a profit before the contract settles.
• Discussion of the contagion effect, the concept that, under globalization, for example, a
financial crisis in one country may affect those around it. The report will examine the
contagion affect of these countries and region. For example, what participate Mexico
peso crisis in Latin America, and what affect the Thailand’s Bhatt had on East Asia
financial crisis.
• Discussion of the trends in Mexico before and after the Peso Crisis and after the
formation of NAFTA in relation to the trends that were implemented under the
MAQUILA, MAQUILADORA and NAFTA programs.
• The report will also explore the exchange rate, direct investment, portfolio equity, tariffs
on imports, and other trade measures in these countries and regions.
• Discussion and assessment of the impact of globalization on the flow of labor within
Mexico and the affect of Maquiladora and Maquila programs. And assess the impact of
globalization on labor movement and Mexico’s standard of living. The report will
examine the processes by which globalization impacts an individual country's movement
of labor and standard of living based on my consideration and perspectives on
globalization and finally an assessment on the implications, and consequences of
globalization.
• Additionally, the pepper will analyze the effect of the international movements of labor
and the issue of remittances e.g. Sudan,. The report will examine the impact of portfolio
and direct foreign investment in contrast to the IMF objectives that reflect the importance
attached to the two type of capital flows, achieved by examining the success of IMF
lending policies in these countries, and what measures applied by the IMF to promote
these capital flows through conditionality in their lending policies? Additionally, the
report will examine the Globalization and Capital Flows discussed and some effects of
globalization, such as contagion, moral hazard, and the impact of direct foreign
investment on the host country.
Asam Mustafa
Washington State University
Pullman, Washington
April 29th 2005

CONTENTS
1. Portfolio Capital……………………………………………………………………….6
Mexico………………………………………….………………………………...6
Argentina…………………………………….…………………………………..14
Thailand………………………………………………………………………….19
2. The Impact of Economic Reforms…………………………………………………….27
Mexico………………………………………………………………………...…27
Argentina………………………………………………………………………...33
Thailand…………………………………………………….……………………38
3. Global Financial Crisis………………………………………………………………..41
Asia Financial Crisis……………..……………………………………………....41
Factors Affected Asian Financial Crises…………………………………………44
Thailand………………………………………………………………………….43
South America Crisis-Mexico…..…………………………………………….…43
4. Contagion Effect……………………………………………………………………....49
Mexico…………………………………………………………………………...50
Thailand………………………………………………………………………….52
5. Moral Hazard……………………………………………………………………….…57
Mexico…………………………………………………………………………...57
Thailand………………………………………………………………………….60
6. Direct Foreign Investment……………………………………………………….……62
NAFTA…………………………………………………………………………..62
Maquiladora……………………………………………………………………...64
Maquila………………………………………………………………………….64
Mexico…………………………………………………………………………...65
7. Production and Labor……………………………………………………………..…..69
International Movement of labor & Issue of Remittances………………………70
Industrial Development and Employment……………………………………....73
Flow of Labor within Mexico…………………………………………………...74
The impact of Maquiladora Program's…………………………………………..79
8. International Monetary Fund…………………………………………………………82
IMF-Bailouts……………………………………….…………….……………...82
Globalization and Capital Flows…………………………………………………84
Globalization & Economy………………………………………………….……85
Globalization & Politics………………………………………………………....89
9. Conclusion…………………………………………………………………………….92
References………………………………………………………………………………116
1. Portfolio Capital
In this section the paper will examine, compare, and contrast the movements of
portfolio capital in Mexico, Argentina and Thailand since 1989; in addition, the paper
will exam what happened in the rest of East Asia and Latin America by testing the
contingent affect, this achieved by making an assessment for the factors affected demands
by for these countries portfolio funds and the factors influenced supplies of these funds in
host country and/or regional.
In addition, analyzing the relationships between the balance on current account, the
budget deficit and the exchange rate, as well as the relationship between the exchange
rate and interest rates in contrast to the inflows of portfolio capital for both region and
countries. Current account deficit was well articulated by Lawrence Summer US Deputy
Treasury Secretary, on the anniversary of the Mexican financial crisis, wrote in the
Economist “close attention should be paid to any current account deficit in excess of 5%
of GDP, particularly if it is financed in a way that could lead to rapid reversal” (Corestti,
& Pesenti, & Roubini, 1998).
Mexico
First, the financial crisis in Mexico, the domestic productive capacity has had
collapsed in 1994. Between 1995 and 1997, more than a third of Mexico's businesses and
over 20,000 small and medium-sized enterprises declared bankruptcy. With domestic
demand still low, interest rates still high and barriers to imports falling. Since the collapse
of the economy, the government has invested the equivalent of more than US$46 billion
in the banking system, an amount equivalent to 12 percent of the country's GDP and
twice the amount spent by the government on education and social development
combined. More than 50 percent of the banks' portfolios are overdue, as most businesses
and consumers cannot repay their loans. The Mexican episode, the deterioration of the
current account in years preceding the 1994 crisis was largely due to a fall in private
savings and boom in private consumption (Corsetti, et al, 1998).
(EIU, 2008)
Mexico’s relevant data examination will be based on many factors that start with the
balance current account for Mexico according to the data (file 2.2) the deficit of the
Current account for Mexico form 1989 until 1994 was $102,196 millions, and from 1995
up until 2003 the current account deficit was $227,042 millions. Thus, the current
account deficit created huge demands for the US dollars since 1988-89 and this problem
existed before the actual Mexican crisis took place.

(EIU, 2008)
Year Deficit
1989-1994 $102,196 Millions
1995-2003 $227,042 Millions
By comparing Mexico current account balance (deficit) with Latin America current
account balance, according to the data in 1989 the current account deficit for Latin
America was $8586 millions, which means the demands for US dollar for the whole
region was huge. And Latin America current account stayed deficit up until 1997, which
was $65214 millions.
Current Account Balance
10000
0
-10000
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
-20000 Latin America
-30000 Mexico
-40000
-50000
-60000
Year
This illustrates the analogues relation between Latin economy as in general and Mexico
as country; both had current account surpluses in 1984 and have similar market behavior
for the rest of the years 1989-1997. Therefore, interest payments on heavy foreign
borrowing have exacerbated the current account deficit. In order to pay back the U.S.
Treasury its bailout loan, the Mexican government borrowed extensively in international
private markets. It offered rates of five percent above what is normal, taking on extensive
obligations. Today, a large percentage of Mexico's reserves are borrowed monies, an
extremely precarious situation, even by IMF standards (p. 18).

Furthermore, measure of the adequacy of foreign exchange reserves will be illustrated by
the ratio of money assets to foreign reserves. This well demonstrated by the Mexico’s
reserves in 1989 was $6,740 millions, which will not cover the current account deficit
($3,958 plus and short-term loans both total $12,620 millions. The reserves in 1993 the
reserves was $25,299 millions and the current account deficit was $23,400 millions, and
the short-term loans were $36,257 millions. By adding short-term loans to the deficit, the
deficit will equal $59,657 millions; this indicates the country financial crisis started well
before 1989.
(EIU, 2008)
Consequently, this led to financial crisis and currency devaluation to cover the deficit
gap, in addition to other major economic reforms that was induced by IMF. Hence, this
means that reserves did not cover short-term loans and this could be one of the reasons of
Mexico financial crisis. Therefore, the change and the deficit in the current account and
in the reserves paved the way for Mexico financial crisis in 1994. Hence, The financial
crisis will continue if current account and reserves and short-term loans are not in
equilibrium. Because of the existence of large foreign reserves facilitates the financing of
a current account deficit, and enhance the credibility of a fixed exchange (p. 35).
The affect of Mexican currency devaluation could also be examined by the exchange rate
for Mexico, in 1985 the currency was devaluated form U$/371.7 pesos and devaluated to
U$/ 0.92 in 1986, in the same time in the black market premium was 6.12% in 1989 the
Mexico's Exchange Rate
400
350
300
250
200 Mexico (Peso/1$)
150
100
50
0
71
73
75
77
79
81
83
85
87
89
91
93
19
19
19
19
19
19
19
19
19
19
19
19
Year
currency exchange rate equal to 2.64 Peso/U$ in the black market was % 11.13.
Moreover, the devaluation increased in 1993 to [U$/3.105 peso] and in the black market
premium was 1.80%, in 1994 the exchange rate was [U$/ 5.35] and finally in 2001 [U$/
9.14]. Hence, this indicate that the economy in turmoil and might not attract portfolio
equities to Mexico because Mexican currency had been devaluated in 1986, this would
indicates financial trouble and possible inflation. Therefore, the portfolio equity
according to the chart started to aim at Mexico in 1990, which was $563 millions and was
growing exponentially in 1993 was $14,297 millions and dropped in 1994 to $4,521
millions and deficit in 1998 $665 and finally deficit in 2002 $104 million.
The Mexican Treasury bill interest rate for the same period were in [1988 -103.7%], in
[1990 44.99%], [1994 14.99%], and in [1996 48.44%]. This indicates that Mexico was
using concretionary monetary policy (raise interest rates and lower income); and possibly
attracted equity portfolio. The real interest rate was nil before 1993. In [1993-11.2%],
[1994-11.4%] and [1996-4.7%] it looks after 1994 that Mexico was applying
expansionary monetary policy (reduce interest rates and raise income).
(EIU, 2008)
Moreover, the Mexican GNP, which is an aggregate final output of citizens and business
of an economy in one-year. Mexico GNP in [1989-$198194 billions] and was growing
exponentially up to [1994-$407,764 billions] and in 1995 dropped to $272,877 billions.
The regional GNP for Latin America for the same period was, in [1989-$106,4676] in
1994 was zero. This indicates that Mexico aggregate final output was growing
exponentially up until 1994 and after the financial crisis it dropped in 1995 to as low as
$272,877 billions. Hence, possibly what had happened may be linked to unwise
economic decisions, or the whole Latin America region was in economic stress.
Furthermore, the GDP is an indicator of the total market value of all final goods
and services produced in an economy in a year. Thus, the Mexican GDP growth rate for
the same period was [1989-1.3%], [1991-4.2%], [1993-2%], [1994-4.5%], [1995 -
(-6.2%)], in [1996-5.1%] and finally in 2003 1.5%. Since the GDP in 1993 was 2% and
the world average was 3.3% indicating that financial crisis on the horizon and Mexico
and slow growth might also contributes to the reasoning of crisis on the horizon.
(EIU, 2008)
GDP Grow th Rates
10
2
Latin America
M exico
0
-2
-4
-6
-8
Y ear
Reference to Mexico capital inflow, the Mexican interest rate was fluctuating and
this might encouraged investor’s because of high Treasury bill interest rate as high as
103.7% in 1988 and between [14%-69%] in the period [1989 –1995]. The real interest
rate for the same period was in [1993-11.2%], [1994-11.4%], and in [1995 was 15%]. In
addition, according to the data portfolio equity in Mexico started in [1990-$563 millions]
and eventually increased in [1992 -$5,365 millions], in [1993-$14,297 millions], in
[1994- $4521millions], and decreased in [1995-$520 millions] and eventually increased
in [1996- $3,922 millions] and in [1999-$1,129 millions].
(EIU, 2008)
(EIU, 2008)
This indicates that investors were attracted to invest in Mexico up to 1993
possibly because of the high interest rate. Thus, the financial crisis of 1994 affected the
capital inflows. Eventually the portfolio capital inflows are gaining momentum in
Mexico; it increased from [$520 millions-1995] to [$1,129 millions] in 1999. This
indicates that Mexico is gaining investors and foreign capital trust back and the financial
situation possibly was improving. Therefore, this illustrates that economy is correlated
and intertwined together in investment network globally and regionally, thus, values and
economic risk are calculated according to the status quo of the host country, region, and
global.
Foreign Direct Investm ent
14000
12000
10000
8000
Mexico
6000
4000
2000
Year
Argentina
In Argentina the deficit on the current account in [1989-$1,305 millions], and the
short-term loans were [1989-8,525 millions] and the reserves for the same year [$3,217
millions]; hence, the reserves will not cover short-term loans and the deficit on the
current account. In 1991 the deficit was [$ 2,862 millions] and the short-tern loans were
[$13,546] and in reserves were [$7,463 millions], again the reserve is not sufficient. In
1993 the current account deficit [$6,557 millions] and the short-term loans were [$9,419
millions] and the reserves were [$15,499 millions]. In 1994 the deficit was [$11,158
millions] and the short-term loans were [$7,171 millions]. In 1995 the deficit was [$5,210
millions] and the short-term loans were [$21,335 millions] and the reserves were
[$15,979 millions].
(EIU, 2008)
These measures indicate that Argentina was not in economic equilibrium, because for
these periods the reserves were not able to cover the trade deficit, and this signal financial
crisis, and will lead to Argentina inability to pay short-term debit, which will contribute
to the financial instability and make investors panic and possibly withdraw their
investment and consequently will create havoc and financial crisis.
Argentina’s Portfolio equity in the same period, in [1989-$8 billions], in [1990-$13
billions], in [1992-$392 millions], [1993-$5,529 millions], in [1994-$1,205 millions] and
in [1995-$211 millions], this led to negative portfolio equity from [1998-2002]. This
indicates that foreign capitals hesitant to invest in Argentina with these variables i.e. trade
deficit and negative reserves.

(EIU, 2008)
Moreover, Argentina GNP for the same period were, [1989-$70,220 billions], [1990-
$135,150 billions], [1993-$251,660 billions], [1994-$254,012 billions], in [1995-
$253,636 billions] and [2002-$95,584 billions]. Hence, Argentina’s GNP varies, but was
healthy in [1994-$254,012 billions] and then deteriorated in the following years up to
[2002-$95,584 billions] this indicate financial institutions were trouble and inflation
might be the consequences, which will lower the aggregate output.
Argentina's Exchange Rate
2.5
1.5 Argentina
0.5
Y ear
Argentina’s currency had been devaluated in 1988 from [U$/2.33] to [U$/. 1795] in 1989
and the black market premium was 103.34% for the same year. And in 1990 was [U$/.
558] and black market premium was [1990-31.96%], in [1994-U$/. 995] and black
market premium was (0), in [2002-U$/3.32] and black-market premium (0), and in
[2003-U$/2.95]. Thus, this indicates a high inflation in Argentina economy. Argentina’s
Treasury bill interest rate for the same period were, [1996-8%], [1997-6.39%], and in
[2001-12.76%]. The real interest rates were, in [1994-7%], [1995-14.2%], and in [1999-
13.3%]. These fluctuations illustrate that Argentina was using expansionary policy to
attract foreign investors, to salvage its economy. Even tough the reserves were minimal
because the existence of large foreign reserves facilitates the financing of a current
account deficit, and enhance the credibility of a fixed exchange (p. 35).
(EIU, 2008)
Argentina’s portfolio equities in [1989-0], [1990-$13 millions] and grew in [1993- $5,529
millions], in [1997-$1,391 millions], and was negative from [1998 -$-210 millions], up to
[2002-$-81 millions]. As portfolio equity increases the foreign direct investment
increases for example, in 1998 foreign investment was [$6,670 millions] contrasting it
with [1989-$-210 millions] portfolio equity. The portfolio equity has decreased
tremendously. This indicates that Argentina is gaining investors trust and the financial
situation was improving.
4000
2000
0
-2000
-4000
-6000 Argentina
-8000
-10000
-12000
-14000
-16000
Year
(EIU, 2008)
(EIU, 2008)
Tahiland
The Asian crisis of 1997; Thailand was borrowing form abroad to finance
domestic investment. Investment rates and capital inflows in Asia remained high even
after the negative signals sent by the indicators of profitability. This occurred for many
reasons, first, of Japan interest rate fall, lowered the cost of capital for firms and thus,
motivated large financial flows into the Asian countries. Asian financial and banking
sectors, lacks supervision and has weak regulations, low capital adequacy ratios, lack of
incentive-compatible deposit insurance schemes, insufficient expertise in the regulatory
institutions, distorted incentives for project selection and monitoring, outright lending
practices, and non-market criteria of credit allocation. Coressetti, et al (1998) indicated
that “ The competitive pressures were enhanced by increasing weight of China’s total
export in the region, the expectation of a monetary contraction in the US in the summer
of 1997 may have also played a role in participating the crisis.”
(EIU, 2008)
(EIU, 2008)
By examining Thai relevant 2.2 data, the deficit on the current account for
Thailand according to the data in [1989-$2,489 millions] and the short-term loans were
[1989-$6,112 millions] and the reserves were [1989-$10,508 millions]. The deficit was
[1990-$7281 millions] and the short-term loans were [1990-$8,322 millions] and the
reserves [1990-$14,258 millions], which is not enough to cover short-term loans because
of the deficit in the current account, this signal financial uncertainty. And in 1994 the
deficit [1994-$8,085 millions] and the short-term loans were [1994-$29,179 millions] and
the reserves were [1994-$30,280 millions], this also negative signs and the financial
stress continues. The deficit was [1996-$14,691 millions] and the short-term loans were
[1996-$37,613 millions] and the reserves were [1996-$38,645 millions], the gap is
getting bigger now, because the deficit is equal [1996-$13,659 millions]. The deficit was
1997-$3021 millions] and the short-term loans were [1997-$39,836 millions] and the
reserves were [1997-$26,897 millions], again the unbalance trade or trade deficit
continues.
20000
10000
0
-10000
82
84
86
88
92
94
96
80
90
East Asia & Pacific
19
19
19
19
19
19
19
19
19
-20000
Thailand
-30000
-40000
-50000
-60000
Year
Hence, this indicates the demand for US dollar increasing, which was illustrated
by Thailand was trying to narrow the deficit on the trade account by devaluating the Thai
currency. In contrast to S.E Asia regional market in the same period according to data in
the deficit on the current account was [1989-$5,544 millions]. And in [1990-$5,282
millions], [1994-$17,122 million], in [1995-$39,681 millions] and in [1997-$7568
millions]; thus, indicates that Thailand and the S.E Asia share analogues economic
behavior, but the current account for region in 1997 was surplus (China and Singapore
economies) and in Thailand was deficit (financial institutions corruption).
(EIU, 2008)
Moreover, by examining the exchange rate for Thailand for the same period; in
1989 the Thai Baht [25.69/1$] and the black market premium was [5.10%], in [1990
U$/25.69] and the black market premium [1.62%] and in 1994 was [U$/28.09] and the
black market premium was (0) and in [1997-U$/47.24] and the black market premium
was [3.08%], in [1998-U$/36.69] and the black market premium (0) and finally in [2000-
U$/44.22]. This indicates that the currency had been devaluated many times in few years
and the black market premium in [1997-3.08%] which cause inflation in the economy.
Thus, this inflation caused by the economic uncertainty and economic crisis in Thailand.
The Thai Treasury bill interest rate for the same period were in [1989-7.5%], [1990-
8.09%], [1996-%10.75], [1997-10.75%] and finally in [2003-3.76%]. The Thai real
interest rate were in [1989-5.8%] and in [1990-8.2%], [1994-5.4%], [1997-8.9%], and
finally in [1999-12.2%], hence, this demonstrate that Thai government and Thai financial
institutions attracting foreign capital into the country because the interest rate is attracting
in both Treasury bill and real interest rate.
(EIU, 2008)
Thailand Baht/1$
50
40
30
20
10
0
73
77
79
81
83
85
89
93
97
99
01
71
75
87
91
95
19
19
19
19
19
19
19
20
19
19
19
19
19
19
19
19
Thailand Baht/1$
Thai portfolio equity for the same period was in [1989-$1,426 millions], foreign
investment were [1989-$1,176-millions] and in [1990-$449 millions] and foreign
investment were [1993-$2,444 millions], [1993-$3,117 millions] and foreign investment
[1993-$1,804 millions] in [1994 -$-538 millions] in [1994-$1,336 millions] and in [1996
-$1,551 millions] in [1997-$ 2,336 millions] and in [1997 negative $-308 millions] in
[1997-$3,895 millions] and, in [1998-$289 millions] and the foreign investment [1997-
$7,315 millions]. This indicates that foreign investments still hoping for the Thai
economy to pick-up or possibly theses foreign investment are in the real estate and were
bought during the economy boom and now their value had been devaluated.
(EIU, 2008)
Furthermore, Thailand GNP for the same period was according to the data in [1989-
$71,329 billions], [1990-$84573 billions], in [1993-$121,955 billions], in [1997-
$147,203 billions]. The regional GNP for the same period, on [1989-890544 billions] in
[1990- $895,916 billions], in [1994-$1,444,044 billions], in [1997-$1,975,412 billions],
and in [1998-$1,649,207 billions] This signals that economy was growing, but the
Thailand’s trade deficit and short-term loans, in addition to the regional and global
economy may have had effected Thailand financial crisis.
The Thai GDP growth rate for the same period were in [1989-13.3%], [1990-2.2%],
[1994-9%], [1996-5.9%], [1997 – negative 1.4%] and finally on [2003-6.8%]. This
indicates that Thailand financial instability has had effected the gross domestic product,
possibly because the financial institutions failure in Thailand during that period. Thailand
debit-to-GDP ratio [33%] of GDP on 1990, [13% until 1994], and [1996-100%-123%] By
contrast in Korea the ratio [54%-85%] for the same period, and in Indonesia was [177%-
294%], in Malaysia was [41%-69%] in the Philippines was [79%-137%] and in China
was [24%-39% for the same period. This may demonstrate the presents of liquidity crisis
in the SE Asia region (p. 32).
(EIU, 2008)
(EIU, 2008)
(EIU, 2008)
(EIU, 2008)
(EIU, 2008)
By the end of 1996, a share of short-term liabilities in total liabilities above 50%
was the norm in the region. Moreover, the ratio of short-term external liabilities to
foreign reserves was above 100% in Korea, Indonesia and Thailand, which indicated that
financial fragility in the region. The current account imbalances in the Asian crisis;
according to the data several Asian countries whose currency collapsed in 1997 has
experienced somewhat sizable current account deficit for example, Thailand trade deficit
[1980-$2,076 millions] through [1997-$3,021 millions]. Based on the data the current
account in Thailand was over 6% of GDP in 1995 and 1996 respectively. According to
the data Asian countries in 1990, GDP growth rates were remarkably high in that period.
Growth rate averaging more than 7% of GDP (sometimes closer to 10%) were norm in
the region (p. 15).

2. The Impact of IMF Economic Reforms
Responding to the challenge, and the policies promoted by the International
Monetary Fund (IMF) and World Bank that was introduced to Mexico, Argentina and
Thailand, all these countries seek efficient market-based systems that provide improved
social welfare and integration with the world economy. To achieve this, these countries
have adopted measures that are now the standard for economic reform regimes
worldwide, i.e. privatization, agriculture reforms, and the lowering of domestic barriers to
trade and foreign investment. However, culture is unique and nations with different
history and culture must be approached according to its economic culture. Consequently,
Argentina, Mexico and Thailand find themselves on the threshold of different economic
futures: Mexico showing considerable promise, Argentina facing continues jeopardy and
long-term uncertainty, Thailand is recovering but with uncertain future. By comparison
and contrast of the choices taken in Argentina, Mexico and Thailand indicates a number
of the key requirements for the successful reform of centralized economies. To measure
these economic reforms, the paper will examine the comparative evaluation all these
reforms strategies and implementation in contrast and comparison with these different
economic cultures.
Mexico Reforms
Two decades of social and economic deterioration in Mexico & Argentina. Since
1976, the Mexican Government has submitted seven Letters of Intent to the IMF and
signed two additional Interim Agreements with the Fund. These accords include
guidelines and limitations on the use of the most important instruments of
macroeconomic policy (i.e., monetary and fiscal policy), and they cover both internal
issues and the management of external accounts. There are three distinct periods in the
history of the agreements between the Mexican government and the IMF. The first phase,
from 1982 to 1987, is known as the period of orthodox adjustment, because
contractionary policies dominated the policy mix. A second stage of "unorthodox"
adjustment starts in 1988 and is based on the premise that anti-inflationary policies could
be implemented without producing a recession in the economy. Prior to the crash of the
peso in December 1994, the international financial institutions (IFIs) had lauded Mexico's
compliance with the adjustment program and cited the government as the "model
student" for other Latin American countries to follow. It was only when the "peso crisis"
hit, that the Fund argued that the government had not fully followed its prescriptions
(IMF, 2002). The following forced Mexican authorities to request IMF assistance, which
was granted on a strict quid-pro-quo basis:
1. By 1982, Mexico had accumulated a US$8 billion backlog in payments on
its external public debt and faced the prospect of another US$14 billions
accumulating over the next three years.
2. Domestic demand was reduced as a result of the sharp drop in real wages:
between 1982 and 1987, 45 and 40 percent reduced minimum and
contractual wages, respectively, in real terms. The decline in international
oil prices in 1986 and the collapse of the Mexican stock market in 1987
wiped out all hopes of recovery, and the government began its quest for a
new adjustment program.
3. The Mexican government appealed to the IMF for assistance. After
consultations, an Enhanced Fund Facility totaling US$3.9 billions,

equivalent to 450 percent of Mexico's IMF quota, was approved. The
stated objectives of the three-year package were to assist in reducing the
external deficit, control inflation, restart the growth process, increase
employment and lower the fiscal deficit.
4. A restrictive monetary policy was to be adopted in order to maintain price
stability. The exchange rate would be adjusted and exchange controls were
to be replaced by a dual-exchange-rate system. In addition, the fiscal
deficit would have to be cut from 8.5 to 5.5 percent of GDP.
5. The IMF corresponded by supporting the renegotiation of US$23 billions
of Mexico's foreign debt, the extension of amortization terms from six to
ten years, and the reduction of interest rates from 2.25 points to 1.5 over
the London Inter-bank Offer Rate (Libor), and from 2.2 to 1.2 points over
the U.S. prime rate.
6. In 1985, the third year of the agreement, the fall in oil prices translated
into renewed difficulties and additional pressure on Mexico's balance-of-
payments position. The Mexico City earthquake further aggravated the
economic situation. During 1986, the Mexican economy was subjected to
another serious external shock as oil prices plummeted. Foregone income
due to the depressed prices amounted to more than US$11 billions or six
percent of GDP.
7. The government once again appealed to the IMF, and an agreement was
signed providing emergency support for an amount equivalent to 1.4
billion in Special Drawing Rights (SDRs).

8. In 1989 a new agreement was reached with the IMF for credits of 2.7
billion SDRs (equivalent to US$3.6 billion), to be used in part for the
servicing of rescheduled external debt. Once again, the objective of the
agreement was to attempt to restart growth and generate employment, as
well as to reduce inflation to 18 percent.
9. Between 1990 and 1994, Mexico increasingly relied on short-term capital
inflows to finance its current-account deficit, and there was no need for
other agreements with the IMF. The trade deficit was responsible for 65
percent of the current-account imbalance [$29662 billions]. Capital flows
ceased after the first quarter of 1994, reserves from $25299 billion in 1993
to $6441 billion in 1994. High interest rates were offered as a risk
premium, but when portfolio investments failed to materialize, protection
was added against exchange-rate changes by dollar-denominating US$28
billions in Treasury bills (Tesobonos).
10. By mid-1994 the markets had reached the conclusion that the current-
account deficit was unsustainable. Reserves were nearly exhausted as the
year drew to an end, and by 22 December 1994 they were equivalent to
less than two months of imports (about US$6 billions). Devaluation was
followed by a stabilization program based on reductions in public
expenditure, hikes in taxes and prices of public-sector goods and services,
a stringent monetary policy and wage controls. An international financial
rescue package was used to meet the dollar-denominated short-term debt
accumulated during 1994 (Center for economic Studies, 2003).

In 1995, Mexico was forced to request urgent assistance from the IMF. In January 1995
the Mexican government submitted a Letter of Intent to the IMF and a new agreement
was reached with two basic objectives: adjustment of external accounts and stabilization
of the main macroeconomic aggregates. The government was granted a contingency
credit for 5.25 billion SDRs (equivalent to US$7.75 billion dollars) in order to help
Mexico redress the negative trends in its balance of payments. This agreement was part of
a larger financial rescue package involving the U.S. Treasury Department's Exchange
Stabilization Fund US$18 billion and the Bank of International Settlements. The rescue
package was designed primarily to pay the short-term debt and forestall a default on
Mexico's outstanding debt. Therefore, after the last reform that was introduced by the
IMF, privatizations were to be accelerated, as economic deregulation and trade
liberalization proceeded. Special attention was given to eliminating restrictions in the
area of foreign direct investment, where 100% foreign ownership was to be authorized. In
the realm of trade liberalization, perhaps the most important commitment was to
accelerate negotiations and wrap up Mexico's accession to the WTO. Mexico also agreed
to substitute tariffs for the vast majority of its quotas in less than 30 months and to reduce
tariff levels on most goods. Finally, alleviating the pressures of Mexico's foreign debt was
another important policy objective of the series of agreements signed with the IMF.
However, 16 years after the 1982 debt crisis, the problem remains unsolved. In 1982, the
total foreign debt amounted to US$86,019 billions, of which US$57 billions were public
debt. In 1993, at the height of the Salinas Administration, the debt had surpassed US$118
billions, of which US$80 billions was the result of public borrowing abroad. And, at the
beginning of 1997, Mexico's total foreign debt amounted to $149301 billions, of which
US$99 billion was public debt. The average annual growth rate of foreign debt during
this period, achieved under macroeconomic policy promoted and approved by the
International Monetary Fund, was 5.7%, while the economy maintained a mediocre
average rate of growth during the same period of 1.8 percent. In all, privatization was
intended to generate US$6 billions dollars in 1995 and between US$6 and 8 billions in
1996. Thus, structural reform responded more to short-term objectives rather than to the
need for a more robust long-term economic growth. GDP grew by 5.2 percent in 1996
and seven percent in 1997, although on a per capita basis, these increases were just 3.4
and 5.2 percent, respectively. The government achieved a US$6.9 billions budget surplus
as of June 1998. These indicators, however, mask a continuing crisis for the Mexican
people. Government spending was cut drastically to achieve the fiscal surplus, in good
part because the government was forced to spend over US$55 billions to bail out the
banking sector. In 1998, oil prices dropped by 30 percent, leading to further cuts in social
spending and public investment. Mexico's trade surplus dropped from US$7.7 billions in
1995 to US$1.4 billion in 1997. Average real wages continued to fall in 1996 and 1997,
and un- and underemployment levels remained high (Center for economic Studies, 2003).
Mexico restored microeconomic stability and resumed after 1995. External
financing supported the reforms programs. The effort was made to restructure the
banking system and in the implementation of reforms to strengthen the economies
growth. The IMF reforms as follow:
1. Fiscal Policy reforms
2. Tax system reforms
3. Control over non-interest expenditure

4. Revenue sharing and expenditure responsibility between local and federal level
5. Reforming treasury operation and management
6. Monetary policy reforms
7. Minimum wage reform and negotiation
8. Structural reforms (banking system, and social security)
9. Action and reforms to enhance labor productivity, divest public enterprises and
increase private sector participation
10. Debt management strategy (lowering the financing costs of Mexico’s public debt)
11. Alleviate poverty and provide social safely nets (IMF-Mexico, 2004)
Furthermore, in 1993, Mexico's current-account deficit surpassed [1993-$23400 billions]
and then increased to [1994-$29662 billions]. It is obvious that the international financial
community judged the deficit unsustainable and investors feared an adjustment via
devaluation. Capital flight took the form of a reversal of capital flows. Exchange-rate
guarantees were issued to holders of Mexican Treasury Bonds (Tesobonos), but even this
could not stem the tide.
Argentina Reforms
Argentina entered what would become a long lasting economic recession. During
the last days of 2001 and the beginning of 2002, the recession imploded into the deepest
economic crisis for a hundred years (Council of Foreign Relations, 2004). Throughout the
1990s the regime of former president Carlos Menem pegged the Argentine peso to the US
dollar, lowered import tariffs, abolished restrictions on capital flows and privatized the
majority of government-owned assets.
The strong peso and a massive expansion of personal debt allowed a consumer boom for
the middle classes, who sated themselves on televisions, hi-fis and the expensive four-
wheel-drive cars that invaded Argentina’s once peaceful beaches in the 1990s. The
consumption boom, however, was built on sand. The strong peso depended not on the
productivity of the Argentine economy, but on a doubling of the country’s foreign debt to
around $145 billions by the end of 2001, and the constant sale of state assets. By the end
of the 1990s, the foreign money had run out, Argentine industry and exports had been
priced out of the market by the strong peso, and Argentina was finding it near impossible
to meet around $19 billions dollars annually in interest payments on the foreign debt
alone. The response of the IMF was to grant successive ‘aid’ packages, while insisting
that Argentina reduced its government deficit by cutting spending. This was always a
dubious proposition, given that the government deficit was due, to a large degree, to ever-
greater foreign debt payments. The result was a collapse of what was left of Argentine
industry, unemployment levels of 25 per cent, and, eventually, the political explosion of
December. In the meantime, Argentina finally declared default on its foreign debt and
devalued the peso after 10 years of ‘convertibility (Ecologist online, 2003). Argentina
had various fundamental problems that brought it to its current, deplorable position with
massive loss of wealth and increase in misery.
1. Argentina’s debt could not continue to grow and be serviced by Argentina’s
economy and exports. Astute observers recognized publicly more than a year ago
(and privately as early as 1999) that Argentina’s foreign currency denominated
debt was unsustainable.
2. Argentina’s budget deficit increased its debt and undermined its monetary policy.
The convertibility law tied the peso to the dollar and permitted unrestricted
convertibility at a fixed exchange rate. This arrangement could not cope with an
unsustainable debt on one side and an overvalued exchange rate on the other. The
appreciation of the dollar and the depreciation of the Brazilian real made
Argentina ‘san unattractive place for investment and a costly place to buy.
3. Argentina made reform, in the early 1990s, but it did not develop a budget policy
or pass a fiscal responsibility law that controlled provincial spending. And it did
not remove some of the structural impediments to growth.
4. Argentina has one of the most regulated labor markets in the world. Those rules
make it difficult and costly for employers to dismiss workers, so companies don't
hire workers in the first place.
IMF has not ignored Argentina In March 2000 it offered a $7.2 billions loan. In January
2001, when the sustainability of Argentina’s debt was very much in doubt, it offered $7
billion more as part of a $20 billion official package. In August 2001, it advanced an
additional $5 billion to prevent a banking and currency run. It should be clear to all that
more money without policy changes did not work (Carnegie Mellon, 2005). Argentina
crises also were the result of weak financial systems that became too exposed to
exchange rate risks as well as large-scale capital inflows driven by cyclical downturns in
the industrial countries in the early 1990s. To this can be added a build-up of excess
demand; rising asset prices fueled by strong credit expansions; speculative and often
imprudent investment decisions; weak governance of enterprises, banks, and in the public
sector; and a general lack of transparency. Argentina's problems do not stem from the
1991 Convertibility Law that linked the peso at a fixed one-to-one rate with the dollar
and made the peso convertible on demand, as critics of that reform claim. To the contrary,
the problems stem from the government's seemingly insatiable thirst for money. The
currency board, which prevents the central bank of Argentina from printing more pesos
than the dollar-denominated reserves that it holds, has made that thirst more apparent
(IMF Website, 2003). The IMF reforms to Argentina’s problem as follow:
1. Fiscal Policy reforms.
2. Currency exchange rate or convertibility Reforms.
3. Structural reform.
4. Fiscal convertibility law.
5. Reform the tax-sharing regime.
6. Tax administration.
7. National Mortgage Bank Reforms
8. Leasing of telecommunications frequencies
9. Financial polices Reforms
10. Provincial Financial Reforms.
11. Labor market reform.
12. Social Security Reforms.
13. Reform of Revenues sharing System.
14. Trade Policy Reform.
15. Monetary policy reforms.
16. Debt management strategy (lowering the financing costs of Argentina’s public
debt).
(EIU, 2008)
According to the Argentina’s economic data, Argentina problem started well
before the 2001 financial crisis. The government spending at state and federal levels has
increased from 38.9 percent of gross domestic product to 49.4 percent since 1997. Hence,
IMF introduced reforms and financial assistance might work well if Argentina adapts
feasible macroeconomic strategy. In 1999 portfolio equity was negative -$10773 millions
and in 2002 -$81 millions. And foreign investment in 2001 was $2166 millions and in
2002 $785 millions. This provides that the economy still not stable and foreign investors
are hesitating in investing in Argentina Furthermore; the current account balance was
deficit -$12344 millions in 1997 through 1999, and in 2000 the deficit was -$8970
millions. GNP is decreasing in 2001 $260454 billions and in 2002 $95584 billions. The
GDP in 1999 was -3.2, in 2000 was -5.3, and GDP per capita in 1999 was -4.66. The total
debt was similar in the period of 1997 through 2000 and in 2002 $132314billion. This
indicates the economy is not recovering even though the IMF has had introduced and
implemented so many reforms programs and the problem still exists by today standards.
Thailand’s Reforms
Thailand problem was prior to 1997 financial crisis, for example external
developments problem, and weakness in financial and corporate systems. The external
imbalances were a reflection both of strong private capital inflows and of high domestic
private investment rates, and were exacerbated, prior to the crisis, by appreciation of the
U.S. dollar to which the currencies of the countries concerned were formally or
informally pegged.
The IMF reforms were for example, a comprehensive strategy to restructure the
financial sectors; strengthen supervision of the financial sector and improve disclosure
and transparency and develop credit culture. The weaknesses of the financial and
corporate sectors contained several elements, including pre-existing weaknesses in
financial institutions' portfolios; un-hedged foreign currency borrowing that exposed
domestic entities to significant losses in the event of domestic currency depreciation;
excessive reliance on short-term external debt; and risky investments against the
backdrop of bubbles in stock and property prices. These elements had been building up in
an environment of large private capital inflows and rapid domestic credit expansion in
liberated financial systems, where implicit government guarantees remained pervasive,
and supervision and regulation were not up to the challenges of a globalizes financial
market. These circumstances, a change in market sentiment could and did lead into a
vicious circle of currency depreciation, insolvency, and capital outflows, which was
difficult to deal or handle in time. On August 20, 1997, the IMF's Executive Board
approved financial support for Thailand of up to SDR 2.9 billion, or about US$4 billion,
over a 34-month period. The total package of bilateral and multilateral assistance to
Thailand came to US$17.2 billion. Thailand drew US$14.1 billion of those amounts
before announcing in September 1999 that it did not plan to draw on the remaining
balances, in light of the improved economic situation (IMF, Thailand, 2005). The
following are the IMF reforms fro Thailand:
1. Reform macroeconomic policies.
2. Fiscal Policy reforms.
3. Financial Sector Restructuring
4. The need for corporate debt restructuring.
5. Monetary and Exchange Rate Policy.
6. Financial Sector Restructuring.
7. Disposition of the Assets of the Closed Finance Companies.
8. Measures to Strengthen the Remaining Financial Institutions.
9. Capital Market Development.
10. Debt management strategy (lowering the financing costs of Thailand’s public
debt).
Therefore, Thailand's economy returned to positive growth in late 1998, and GDP growth
reached over 4% in 1999 and should grow by 4.5% to 5.0% in 2000. The balance of
payments is expected to remain strong in the near term, even as the current-account
surplus declines as the recovery proceeds. Foreign-exchange reserves remain within the
$32 to 34 billion range envisioned in the program. Despite of what said about the IMF
reforms the Thai economy exhibited some signs of economic recovery in 1999. Thailand
reserves in 1999 were $34,781 millions country's solvency in terms of having adequate
foreign reserves to meet its potential obligations has been achieved. Capacity utilization
and production have increased significantly in many sectors. The growth of export value
in US dollar has surpassed the original target. Quarterly GDP growth has been positive
and increasing since the first quarter of 1999, driven particularly by high growths of the
manufacturing sector. Thailand’s GDP growth started to become positive from the first
quarter of 1999, increasing by 0.9% compared to the same quarter of 1998. GDP growth
increased to 3.3% in the second quarter and 7.7% in the third quarter. Manufacturing
growth has been particularly impressive; increasing by 6.6%, 9.5% and 17.4% in the first
second and third quarter respectively. Domestic expenditure for this sector grew by
10.9% in the second quarter of 1999 and by 37.3% in the third quarter. Overall growth
was also helped by the recovery in export growth. Export value in US dollar for the first
eleven months of 1999 increased by 6.7% compared to the same period of 1998. Imports
value in US dollar for the first eleven months increased by 15.4% compared to the same
period in 1998 (5.1% increase in Baht value). The current account has continued to
remain in surplus, with the total for the first eleven months being 10.4 billions US$. At
the same time, net repayment of foreign debt by the private sector amounted to 12.8
billions US$ during the same period. Therefore, the entire current account surplus was
used to reduce the foreign debt burden of the country. Currently, the foreign reserve
position of the country is very healthy when compared to the outstanding short-term
foreign debt (Chalongphob, 2003).
3. Global Financial Crises
The nature of the Asian financial crisis is explored and the underlining causes of
their global nature. By examining the Asian financial crisis in Thailand a result of an
overvalued exchange rate, excessive government borrowing, or too much consumption of
import. Moreover, the paper will examine what precipitated the crisis in Mexico and
Argentina.
Asian Financial Crisis
First, Asian crisis of 1997; Thailand was borrowing form abroad to finance
domestic investment. Investment rates and capital inflows in Asia remained high even
after the negative signals sent by the indicators of profitability. This occurred for many
reasons:
• Japan interest rate fall, lowered the cost of capital for firms and motivated large
financial flows into the Asian countries. Moreover, Asian financial and banking
sectors, lacks supervision and has weak regulation, low capital adequacy ratios,
lack of incentive-compatible deposit insurance schemes, insufficient expertise in
the regulatory institutions, distorted incentives for project selection and
monitoring, outright lending practices, non-market criteria of credit allocation.
Additionally, international dimension of the moral hazard problem hinged upon
the behavior of international banks, which over the period leading to the crisis
had lent large amounts of funds to the region’s domestic intermediaries, with
apparent neglect of the standards for sound risk assessment.
• A very large fraction of foreign debt accumulation was in the form of bank-
related short-term un-hedged, foreign-currency denominated liabilities and the
long period stagnation of the Japanese economy in 1990s led to a significant
export slowdown from the Asian countries in the month preceding the eruption of
the crisis.
• Sector-specific shocks such as the fall in demand for semiconductors in 1996,
and adverse terms of trade fluctuations also contributed to the worsening of the
trade balances in the region between 1996 and 1997.
• The sharp appreciation of the US dollars relative to the Japanese yen and the
European currencies since the second half of 1995 let to deteriorating cost-
competitiveness in most Asian countries whose currencies were effectively
pegged to the dollar.
• The competitive pressures were enhanced by increasing weight of China total
export from the region, the expectation of a monetary contraction in the US in the
summer of 1997 may have also played a role in participating the crisis (Coresstti,
et al, 1998).
Factors Affected Asian Financial Crises
The following factors played a big role in the Asian crisis:
• Between 1990 and 1993, the Thai stock market rose by 175% [395% for property
sector], but then lost [51%-71%] for property sector of its value between [1990-
1993] (p. 15). Asian countries were characterized by very high savings rates
through 1990s, in many cases above 30% (p. 17).
• High inflation might signal poor macroeconomic policy or sizeable fiscal
imbalances. Therefore, the nominal depreciation of Asian currencies in 1997 was
consistent with the expected inflationary consequence of banking and financial
bailout becomes inevitable (p. 18).
• In Thailand the Baht was effectively fixed between [25.2 – 25/$] from [1990-
1997]. And the real exchange rate has appreciated by 12%.
• In general an exchange rate appreciation was correlated with a worsening of the
current account. Countries with appreciating currencies generally experienced a
larger deterioration of the current account. The US dollar appreciated sharply in
the month leading to the crisis (p. 21).
• External liabilities in Korea increased from [$45 billions- $116 billions] in 1997.
In Indonesia, gross liabilities grow from [$37 billions-1993] to [$60 billion-
1997]. In Thailand gross liabilities grow from [$34 billion-1993] to [98 billions-
1997] (p. 34).
• The ratio of foreign liabilities to assets deteriorate severely in 1990, in Thailand it
reaches 1,103% in 1996. In Korea was [1996-375%], Indonesia [1996-424%], in
the Philippines was [1996-172%], Hong Kong [165%], Singapore [162%] and
Malaysia [148%] and China were [20%] for the same period (p. 34).
Thailand
According to Thailand central bank statistics, from a total of 240 banks in April
1996, 15 banks did not meet the required 8% capital adequacy ratio, 41 did not comply
with legal spending limit, and 12 out of 77 licensed foreign exchange banks did not meet
the rules on net overnight position. Rapid growth within this deregulated system, along
with the struggle for market shares, resulted is a system containing an excessive number
of small-undercapitalized banks. Problem pointed by the IMF in November 1996 (p. 29).
By examining Thai relevant 2.2 data, the balance on the current account for Thailand
according to the data the deficit was [1980-$2076 millions] which indicates the demand
for US dollar and negative up to 1985, then surpluses in [1986-$247 millions] and then
was deficit in [1995-$13554 millions], in [1997-$3021 millions], which indicates the
demand for U$. This indicates that Thailand was trying to narrow the deficit on the trade
account. By comparison to S.E Asia market in the same period according to data in 1980
the balance on the current account deficit by $6033 millions, which indicates the demand
for U$. And in deficit up until 1986 and in 1987 were surpluses $8958 million and
surpluses in 1988 of $7653 millions and then surpluses in [1997-$7568] millions. Thus,
Thailand reserves in 1995 was $36936 millions and in [1997-$26897] millions which was
insufficient to cover the trade deficit and the short-term loans. Which will lead to
currency devaluation and/or depreciation.
Moreover, by examining the exchange rate for Thailand for the same period; in 1971 the
Thai Baht/1$ was 20.923 and stayed the same up 1980, and in 1981 was [23 Baht/1$] and
[1984-27.15 Baht/1$], from 1987 through 1996 was in [25 Baht/1$] range and all of
sudden in 1997 jumped up to [47.24 Baht/1$] and [44.22 Baht/1$] in 2001. The Thai
interest rate for the same period were 6.3% in 1976 and in 1982 were 11.3% in 1984
15.1%, in 1997 8.9% and in 1999 12.2%. Therefore, this indicates that the economy in
turmoil because of currency devaluation, higher interest rates, and the obvious trade
deficit. Thailand and will not attract portfolio capital to the country on these current
conditions.
By examining Thai relevant 2.2 data, the deficit on the current account for Thailand
according to the data in 1989 was $2489 millions and the short-term loans were $6112
million and the reserves was $10508 millions, in 1990 the deficit was$7281 millions and
the short-term loans were $8322 millions and the reserves was $14,258 millions is not
enough to cover short-term loans and the deficit in the current account, this signal
financial uncertainty. And in 1994 the deficit was $8085 millions and the short-term loans
were $29179 millions and the reserves was $30280 millions, these quantities measures
indicates a financial crisis at the horizon and the financial stress continues. And in 1996
the deficit was $14691 millions and the short-term loans were $37613 millions and the
reserves was $38645 millions, the gap is getting bigger now the deficit is equal $13659
millions. And in 1997 the deficit was $3021 millions and the short-term loans were
$39836 millions and the reserves was $26897 millions, again the imbalance trade or trade
deficit continues. These quantities measures indicate the demand for US dollar
increasing. In addition, Thailand was trying to narrow the deficit on the trade account by
devaluating the Thai currency. By comparison to S.E Asia market in the same period
according to data in 1989 the deficit on the current account was $5544 millions. And in
1990 the deficit was $5282 millions and in 1994 the deficit was $17122 millions and in
1995 the deficit was $39681 and in 1997 was surplus of $7568 millions. Thus, Thailand
and the S.E Asia share analogues economic behavior. Possibly, because if China market
penetration strategies.
The Thai GDP growth rates for the same period were in [1971-5%], in [1978-9.9%] and
in [1986-4.6%] and in [1989-13%], [1997 -1.4%] and finally in [2003 is 6.8%]. This
indicates that financial crisis affected the gross domestic product, possibly because the
financial institution failure in Thailand in that period and the economy was retrograding.
Thailand debit-t-GDP ratio was 33% of GDP in 1990. Thailand ratio was 13% until 1994
in 1996 in Thailand was 100%-123%, Korea was 54%-85%, Indonesia 177%-294%,
Malaysia [41%-69%], [Philippines 79%-137%] and in China [24%-39%]. This indicates
liquidity crisis in the SE Asia region, and economic failure in the region (p. 32).
By the end of 1996, a share of short-term liabilities in total liabilities above 50% was the
norm in the region. Moreover, the ratio of short-term external liabilities to foreign
reserves was above 100% in Korea, Indonesia and Thailand, which indicated that
financial fragility in the region. The current account imbalances in the Asian crisis;
according to the data several Asian countries whose currency collapsed in 1997 has
experienced somewhat sizable current account deficit for example, Thailand trade deficit
1980 was $2076 millions through 1997 $3021 millions. Based on the data the current
account in Thailand was over 6% of GDP in 1995 and 1996. According to the data Asian
countries in 1990, GDP growth rates were remarkably high in this period. Growth rate
averaging more than 7% of GDP (sometimes closer to 10%) were norm (p. 15).
South America Financial Crises-Mexico
The crisis in South America, Mexico, the domestic productive capacity has
collapsed in 1994. Between 1995 and 1997, more than a third of Mexico's businesses and
over 20,000 small and medium-sized enterprises declared bankruptcy. With domestic
demand still low, interest rates still high and barriers to imports falling. Since the collapse
of the economy, the government has invested the equivalent of more than US$46 billions
in the banking system, an amount equivalent to 12 percent of the country's GDP and
twice the amount spent by the government on education and social development
combined. More than 50 percent of the banks' portfolios are overdue, as most businesses
and consumers cannot repay their loans. The Mexican episode, the deterioration of the
current account in years preceding the 1994 crisis was largely due to a fall in private
savings and boom in private consumption (p. 17).
Mexico’s relevant data will be based on many factors it starts with the balance current
account for Mexico according to the data file 2.2 the deficit of the current account for
Mexico in 1989 was $3958 millions, and the deficit in 1990 $7451 millions, in 1991
$13283 millions, 1992 $24442 millions, in 1993 $23400 millions, in 1994, $29662
millions, in 1995 $1576 millions; hence, the current account deficit stayed until 1997,
$7454 millions. The current account deficit created huge demands for the US dollars
since 1988-89 and this problem existed before the actual Mexican crisis took place. By
comparison Mexico current account balance (deficit) with Latin America current account
balance, according to the data in 1989 the current account deficit for Latin America was
$8586 millions, which means the demands for US dollar for the whole region was huge.
And Latin America current account stayed deficit up until 1997, which was $65214
millions. This illustrates the analogues relation between Latin economy as in general and
Mexico as country; both had current account surpluses in 1984 and have similar market
behavior for the rest of the years (1989-1997). Therefore, interest payments on heavy
foreign borrowing have exacerbated the current account deficit. In order to pay back the
U.S. Treasury its bailout loan, the Mexican government borrowed extensively in
international private markets. It offered rates of five percent above what is normal, taking
on extensive obligations. Today, a large percentage of Mexico's reserves are borrowed
monies, an extremely precarious situation, even by IMF standards (p. 18).
Moreover, measure of the adequacy of foreign exchange reserves is the ratio of money
assets to foreign reserves. This well illustrated by the Mexico’s reserves in 1989 were
$6740 millions, which will not cover the current account deficit of $3958 plus and short-
term loans both total $12620 millions. The reserves in 1993 the reserves was $25299
millions and the current account deficit was $23400 millions, and the short-term loans
were $36257 millions. By adding short-term loans and the deficit will equal $59657
millions, this indicates the country financial crisis started well before 1989. This
eventually led to financial crisis and currency devaluation to cover the deficit gap in
addition to other major economic reforms that was induced by IMF. Hence, this means
that reserves did not cover short-term loans and this could be one of the reasons of
Mexico financial crisis. The change and the deficit in the current account and in the
reserves paved the way for Mexico financial crisis in 1994. The financial crisis will
continue if current account and reserves and short-term loans are not in equilibrium.
Because of the existence of large foreign reserves facilitates the financing of a current
account deficit, and enhance the credibility of a fixed exchange (p. 35).
Thus, the Mexican currency devaluation could also be examined by the exchange rate for
Mexico, in 1985 the currency was devaluated form [U$/371.7 pesos] and devaluated to
[U$/ 0.92] in 1986, in the same time in the black market premium was 6.12%. In 1989
the currency exchange rate equal to [2.64 Peso/U$] in the black market was % 11.13.
Moreover, the devaluation increased in 1993 to [U$/3.105 peso] and in the black market
premium was 1.80%, in 1994 the exchange rate was [U$/ 5.35] and finally in [2001-U$/
9.14]. Hence, this indicate that the economy in turmoil, this would indicates financial
trouble and possible inflation. Therefore, the portfolio equity according to the chart
started to aim at Mexico in 1990, which was $563 millions and was growing
exponentially in 1993 was $14,297 millions and dropped in 1994 to $4,521 millions and
deficit in 1998 of $665 and finally deficit in 2002 $104 million.
The Mexican Treasury bill interest rate for the same period in were 1988 103.7% and in
1990 44.99% and in 1994 14.99%, in 1996 48.44%. This indicates that Mexico was
using concretionary monetary policy (raise interest rates and lower income); and possibly
attracted equity portfolio. The real interest rate was nil before 1993. In 1993 was 11.2%
in 1994 11.4% and in 1996 4.7% it looks after 1994 that Mexico was applying
The Mexican GDP growth rate for the same period was [1989-1.3%], and in [1991-4.2%]
and in [1993-2%], in [1994-4.5%], [1995 -6.2%], [1996-5.1%] and finally in [2003-
1.5%]. Since the GDP in 1993 was 2% and the world average was 3.3% indicating that
financial crisis on the horizon and Mexico and slow growth might also contributes to the
reasoning of crisis on the horizon.
4. Contagion Effect
The contagion affects the concept that under globalization, a financial crisis in one
country may affect those around it. Thus, I will examine what participated in Mexico
peso crisis in Latin America, and Thailand and East Asia crisis and their relation to the
contagion effect.
Mexico
Mexico and Latin America region, the domestic productive capacity has collapsed
in 1994. Between 1995 and 1997, more than a third of Mexico's businesses and over
20,000 small and medium-sized enterprises declared bankruptcy. With domestic demand
still low, interest rates still high and barriers to imports falling. Since the collapse of the
economy, the government has invested the equivalent of more than US$46 billion in the
banking system, an amount equivalent to 12 percent of the country's GDP and twice the
amount spent by the government on education and social development combined. More
than 50 percent of the banks' portfolios are overdue, as most businesses and consumers
cannot repay their loans. The Mexican episode, the deterioration of the current account in
years preceding the 1994 crisis was largely due to a fall in private savings and boom in
private consumption (Coresstti, et al. 1998).
Mexico’s relevant data will be based on many factors it starts with the balance
current account for Mexico according to the data file 2.2 the deficit of the current account
for Mexico in [1989-$3958 millions], and the deficit in [1990-$7451 millions], in [1991
$13283 millions], in [1992 $24442 millions], in [1993-$23400 millions], in [1994-
$29662 millions], in [1995 $1576 millions]; hence, the current account deficit stayed
until [1997-$7454 millions]. The current account deficit created huge demands for the US
dollars since 1988-89 and this problem existed before the actual Mexican crisis took
place. By compare Mexico current account balance (deficit) with Latin America current
America was $8586 millions, which means the demands for US dollar for the whole
was $65214 millions. This illustrates the analogues relation between Latin economy as in
general and Mexico as country; both had current account surpluses in 1984 and have
similar market behavior for the rest of the years (1989-1997). Therefore, interest
payments on heavy foreign borrowing have exacerbated the current account deficit. In
order to pay back the U.S. Treasury its bailout loan, the Mexican government borrowed
extensively in international private markets. It offered rates of five percent above what is
normal, taking on extensive obligations. Today, a large percentage of Mexico's reserves
are borrowed monies, an extremely precarious situation, even by IMF standards (p. 18).
This Mexican currency devaluation could also be examined by the exchange rate for
Mexico, in 1985 the currency was devaluated from [1U$/371.7 pesos] to [U$/ 0.92-
1986], in the same time in the black market premium was 6.12%. In 1989 the currency
exchange rate were equal to 2.64 Peso/U$ in the black market was % 11.13. Moreover,
the currency devaluation and appreciation increased in 1993 were U$/3.105 peso and in
the black market premium was 1.80%, in 1994 the exchange rate was U$/ 5.35 and
finally in 2001 U$/ 9.14. Hence, this indicate that the economy in turmoil, this would
indicates financial trouble and possible inflation. Therefore, the portfolio equity
according to the chart started to aim at Mexico in 1990, which was $563 millions and was
growing exponentially in 1993 was $14,297 millions and dropped in 1994 to $4,521
millions and deficit in 1998 of $665 and finally deficit in 2002 $104 million.
Furthermore, the Mexican Treasury bills interest rate for the same periods were in 1988
103.7%, in 1990 44.99%, in 1994 14.99%, and in 1996 (48.44%). This indicates that
Mexico was using concretionary monetary policy (raise interest rates and lower income);
and possibly attracted equity portfolio. The real interest rate was nil before 1993. In 1993
was 11.2% in 1994 11.4% and in 1996 4.7% it looks after 1994 that Mexico was applying
Thailand
1997crisis in Thailand and S.E Asia region; Thailand was borrowing form abroad to
finance domestic investment. Investment rates and capital inflows in Asia remained high
even after the negative signals sent by the indicators of profitability. This occurred for
many reasons, for example, Japan interest rate fall, lowered the cost of capital for firms
and motivated large financial flows into the Asian countries. Moreover, Asian financial
and banking sectors, lacks supervision and has weak regulation, low capital adequacy
ratios, lack of incentive-compatible deposit insurance schemes, insufficient expertise in
the regulatory institutions, distorted incentives for project selection and monitoring,
outright lending practices, non-market criteria of credit allocation. The competitive
pressures were enhanced by increasing weight of China total export from the region, the
expectation of a monetary contraction in the US in the summer of 1997 may have also
played a role in participating the crisis (Corestti, et al. 1998). By examining the 2.2 data
in 1994 Thailand deficit was $8085 millions and the short-term loans were $29179
millions and the reserves was $30280 millions, this also negative and the financial stress
continues. And in 1996 the deficit was $14691 and the short-term loans were $37613
millions and the reserves was $38645 millions, the gap is getting bigger now the deficit is
equal $13659 millions. And in 1997 the deficit was $3021 millions and the short-term
loans were $39836 millions and the reserves was $26897 millions, again the unbalance
trade or trade deficit continues. This indicates the demand for US dollar increasing. This
indicates that Thailand was trying to narrow the deficit on the trade account by
devaluating the Thai currency. By comparison to S.E Asia market in the same period
according to data in 1989 the deficit on the current account was $5544 millions. And in
1990 was $5282 millions, in 1994 $17122 millions, in 1995 $39681 millions, and in 1997
were surplus of $7568 millions. Thus, Thailand and the S.E Asia share analogues
economic behavior, but the current account for region in 1997 was surplus (China and
Singapore economies) and in Thailand was deficit (financial institutions corruption).
Moreover, by examining the exchange rate for Thailand for the same period; in 1989 the
Thai Baht was 5.69/1$ and the black market premium was 5.10%, in 1990 U$/25.69 and
the black market premium 1.62% and in 1994 was U$/28.09 and the black market
premium (0) and in 1997 U$/47.24 and the black market premium 3.08%, in 1998
U$/36.69 and the black market premium (0) and finally in 2000 U$/44.22. This indicates
of currency had been devaluated many times in few years and the black market premium
in 1997 was 3.08% which cause inflation in the economy. Thus this inflation caused by
the economic uncertainty and economic crisis in Thailand.
The Thai Treasury bill interest rate for the same period were in 1989 7.5%, in 1990
8.09%, in 1996 %10.75, in 1997 10.75% and finally in 2003 were 3.76%. The Thai real
interest rate were in 1989 was 5.8%, in 1990 8.2%, in 1994 5.4% and in 1997 8.9% and
finally in 1999 12.2%. This indicates Thai government and Thai financial institutions
attracting foreign capital into the country because the interest rate is attracting in both
Treasury bill and real interest rate.
During the 1990s the lending boom in Thailand was 58% comparing to Mexico and the
‘Tequila effect’ countries, between 1990 and 1994 the lending boom in Mexico 116%. In
Thailand the lending boom was significantly larger for finance and securities companies
was 133%. By 1997, non-performing loans of local banks in Thailand were 15%. Asset
deflation and the sharp drop in the value of the collateral especially real estate triggered
the irreversible surge in the share of non-performing loans (p. 28).
According to these financial crises, a country may suffer a short-run liquidity
problem when available stock of reserves is low relative to the overall burden of external
debt services (interest payment plus renewal of a loans coming to maturity) Liquidity
problems emerge when panicking external creditors—perhaps in response to rapid
devaluation—become unwilling to role over existing short-term credit. If a large fraction
of a country’s external liabilities are short-term, a crisis may take a form of pure liquidity
shortfall. Hence, the inability by country to roll over its short-term liabilities for example
the experience of Mexico with its short-term public debit that is analogues of had
happened in Thailand, Mexico and Argentina banking system.
In 1999 the per capita growth rate in Thailand 3.33%, in Mexico 1.737% and Argentina
-4.66%, by contrast to 1997, Mexico 3.38%, Thailand 4.8% and Argentina 4.18%. This
indicates the economy still staggering in theses nations.
Therefore, these countries total debit, for example in Thailand in 1997 was $109,669
millions, Mexico in 1997 $147,632 millions and in Argentina in $128,411 millions. By
contrast the balance on the current account in 1997 for Thailand was a deficit of $3,021
millions, Mexico deficit of $7,454 millions, and Argentina deficit $12,344. This indicates
the imbalance between debit and current account balances and reserves, which might
indicate financial problem on the horizon and might influence currency exchange rate and
inflows of portfolio equities.
As explained by Federal Bank of San Francisco that

“The Mexican financial crisis with return data on domestic stock indexes and
closed-end country equity funds for Asian and Latin American countries. They
find that the Mexican shock spilled over strongly to other countries in Latin
America, and to a lesser extent "passed through" Asian country funds traded in
New York to stock markets in Asia. The authors also assess the extent to which
these spillover effects can be attributed to economic fundamentals, and conclude
that countries with weaker external positions, as measured by high debt-export
and current account deficit-GNP ratios, or low foreign reserve-GNP ratios,
experienced more adverse spillover effects” (Federal Reserve Bank of San
Francisco, 2002).
Contagion effect as explains by Kristin J. Forbes of the National Bureau of Economic
Research “that the measure whether trade linkage are important determinants of country’s
vulnerability to crisis that originate elsewhere in the world. Trade can transmit crisis
internationally via distinct channels:
• The competitiveness effect (inability to compete aboard)
• Income effect (crisis reduce income, reduce export price)
• Cheap import affects
In 1990’s was pointed by series of financial and currency crisis: the Mexican Peso
collapse in 1994; East Asia crisis in 1997-98; Russian collapse in 1998 and devaluation in
Brazil and Ecuador. The channels that produce the contagion effect are:
• If the two countries trade directly, export to the same country or compete in the
same industries.
• The crisis in one of the countries could change the relative price and quantities of
good traded (Forbes, 2003)
Hence, the contagion effect and currency devaluation was due to: the Asian financial
crisis started with the devaluation of Thailand’s Bath, which took place on July 2, 1997, a
15 to 20 percent devaluation that occurred two months after this currency started to suffer
from a massive speculative attack and a little more than a month after the bankruptcy of
Thailand’s largest finance company This first devaluation of the Thai Baht was soon
followed by that of the Philippine Peso, the Malaysian Ringgit, the Indonesian Rupiah
and, to a lesser extent, the Singaporean Dollar. This series of devaluations marked the
beginning of the Asian financial crisis. This first sub-period of the currency crisis took
place between July and October of 1997.
Additionally, sub-period of the currency crisis can be identified starting in early
November 1997 after the collapse of Hong Kong’s stock market (with a 40 percent loss in
October). This sent shock waves that were felt not only in Asia, but also in the stock
markets of Latin America (most notably Brazil, Argentina and Mexico). In addition to
these stock markets, were those of the developed countries (e.g. the U.S. experienced its
largest point loss ever in October 27, 1997, which amounted to a 7 percent loss). These
financial and asset price crises also set the stage for this second sub-period of large
currency depreciations. This time, not only the currencies of Thailand, the Philippines,
Malaysia, Indonesia and Singapore were affected, but those of South Korea and Taiwan
also suffered. In fact, the sharp depreciation of Korea’s Won beginning in early
November added a new and more troublesome dimension to the crisis given the
significance of Korea as the eighth largest economy in the world; the magnitude of the
depreciation of its currency which took place in less than two months; and the Korean
Central Bank’s success in maintaining the peg ever since the Thai’s first devaluation (i.e.
the “nominal anchor” of the largest of the Asian Tigers was suddenly lost). In addition,
was the other important component of this second sub-period: the complete collapse of
the Indonesian Rupiah that started at about the same time (Garay, 2003).
5. Moral Hazard
Mexican crisis in 1994 and Thailand financial crisis in 1997 are explored to see if
there is evidence of such moral hazard. In addition, the paper will we will examine the
concept of moral hazard. Moral hazard can be present any time two parties come into
agreement with one another. Each party in a contract may have the opportunity to gain
from acting contrary to the principles laid out by the agreement. The risk that a party to a
transaction has not entered into the contract in good faith, has provided misleading
information about its assets, liabilities or credit capacity, or has an incentive to take
unusual risks in a desperate attempt to earn a profit before the contract settles (Investopia,
2005).
Mexico
Mexico portfolio investment, the availability of lenders of last resort, such as the
Mexican rescue package provided by the U.S. and the International Monetary Fund that
minimized losses to creditors and providers of short-term capital to those countries,
results in reckless lending/investment behavior on the part of lenders and portfolio
investors because they know they will be bailed out in case of default.
Mexico’s relevant data will be based on many factors it starts with the balance current
account for Mexico according to the data file 2.2 the deficit of the current account for
Mexico in 1989 was $3,958 millions, and portfolio equity was zero; in 1990 the current
account deficit was $7,451 millions, and portfolio equity was $563 million and in 1991
the current account deficit was $13,283 millions, and portfolio equity was $4,404 million;
in 1992 the current account deficit was $24,442 millions, and portfolio equity was $6,365
million; and in 1993 the deficit was $23,400 millions, and the portfolio equity was
$14,297 million and in 1994 the current account was a deficit of $29,662 millions, and
the portfolio equity was $4,521 million; and in 1995 the deficit was $1576 millions; and
the portfolio equity was $520 million; additionally the portfolio equity in 1996 was
$3,922. The current account deficit was increasing exponentially until [1997-$7,454
millions]. Furthermore, the total debt in 1992 was $112,309 million, in 1994 was
$140,202 million; in 1995 was $166,883 and in 1996 was $157,755. Which indicates
Mexico was heading towards financial turmoil.
By comparing Mexico current account balance deficit with Latin America current
America was $8,586 millions, which means the demands for US dollar for the whole
was $65214 millions. This illustrates the analogues relation between Latin economy as in
general and Mexico as country; both had current account surpluses in 1984 and have
similar market behavior for the rest of the years (1989-1997).
10000
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1990
1991
1994
1989
1992
1993
-10000
-20000 Latin America
-30000 Mexico
-40000
-50000
-60000
Year
Therefore, interest payments on heavy foreign borrowing have exacerbated the current
account deficit. In order to pay back the U.S. Treasury its bailout loan, the Mexican
government borrowed extensively in international private markets. It offered rates of five
percent above what is normal, taking on extensive obligations. Today, a large percentage
of Mexico's reserves are borrowed monies, an extremely precarious situation, even by
IMF standards (Coresseti, et al, 1999).
IMF standards is well illustrated by the Mexico’s reserves in 1989 was $6,740 millions,
which will not cover the current account deficit $3,958 plus the short-term loans both
total $12,620 millions. The reserves in 1993 the reserves was $25,299 millions and the
current account deficit was $23,400 millions, and the short-term loans were $36,257
millions. By adding short-term loans and the deficit will equal $59,657 millions, this
indicates the country financial crisis started well before 1989. This eventually led to
financial crisis and currency devaluation to cover the deficit gap in addition to other
major economic reforms that was induced by IMF. Hence, this means that reserves did
not cover short-term loans and this could be one of the reasons of Mexico financial crisis.
The change and the deficit in the current account and in the reserves paved the way for
Mexico financial crisis in 1994.
Thus, the financial crisis will continue if current account and reserves and short-term
loans are not in equilibrium. Because of the existence of large foreign reserves facilitates
the financing of a current account deficit, and enhance the credibility of a fixed exchange
(35). Therefore, current account deficit created huge demands for the US dollars since
1988-89 and this problem existed before the actual Mexican crisis took place. In addition,
the portfolio equity was zero (1977-89) and by 1990 the portfolio equity was $563
million and was in exponential growth up to 1993 $14,297 million just before the
Mexican crisis. This might indicates a moral hazard demonstrated in the behavior of the
portfolio equity above.
GDP Grow th Rates
10
2
Latin America
M exico
0
-2
-4
-6
-8
Y ear
Thailand
By examining Thailand relevant data (2.2), the current account was in huge deficit
according to the data. The current account in Thailand was deficit since 1980
($2,079million) up to 1995; the deficit was $13,554 millions and the short-term loans
were $41,095 million and the reserves was $36939 millions, in 1996 the current account
deficit was$14,691 millions; the short-term loans were $37,613 millions and the reserves
was $39,645 millions which s not enough to cover short-term loans and the deficit in the
current account. This signals uncertainty of financial future in the country. Moreover, in
1997 the current account deficit was $3021 millions and the short-term loans were
$29,660 millions and the reserves were $26,897 millions. These balances still in deficit
and the financial stress continue and the unbalance trade or trade deficit continues.
20000
10000
0
-10000
82
84
86
88
90
92
94
80
96
East Asia & Pacific
19
19
19
19
19
19
19
19
19
-20000
Thailand
-30000
-40000
-50000
-60000
Year
Moreover, the portfolio equity was zero (1970-85). And in 1993 was $3,117 million; in
1994 it was a deficit of $538 million. In 1995 the portfolio equity was $2,154 million and
in 1996 was $1,551 million; and the deficit in 1997 was $308 and positive after that. This
indicates the demand for US dollar increasing. It also, indicates that Thailand was trying
to narrow the deficit on the trade account by devaluating the Thai currency. Furthermore,
Thailand total debt was in 1995 was $83,093 million, and in 1996 was $90,887 million
and in 1997 was $109,699 million; and in 1998 was $104,917 million. This indicates
Thailand economy is suffering greatly because its inability to cover short term loans and
balance its trade. Possibly foreign investments still hoping for the Thai economy to pick-
up or possibly theses foreign investment are in the real estate and were bought during the
economy boom and now their value had been devaluated or it might be moral hazard
demonstrated in the behavior of the portfolio equity above.
6. Direct Foreign Investment
The trends in Mexico before and after the Peso Crisis and after the formation of
NAFTA in relation to the trends that were implemented under the MAQUILA,
MAQUILADORA and NAFTA programs are examined. Additionally, the paper will
explore the exchange rate, direct investment, portfolio equity, tariffs on imports, and
other trade measures. The Mexican economy experienced a sharp contraction in 1995,
after the Peso-devaluation of December 22, 1994. The GDP growth rate in 1987 was
-3.1%, in 1989 1.3%, in 1990 4.2% and in 1994 was 4.5% and reached rate of -6.2% in
1995, and became positive again during the first quarter of 1996. In 1996 and 1997 the
Mexican economy grew at healthy rates of 5.1% and 6.8% respectively. Thus, the
decisive response of the fiscal and monetary authorities supported by a generous financial
package of billions of dollars announced in March 9, 1995, were crucial for a rapid
recovery of lost investor confidence. These policies prompted a rapid stabilization of the
currency and a turnaround in investment and economic activity.
NAFTA
In 1991,Mexico the U.S. and Canada launched the negotiations over the terms of
the North American Free Trade Agreement (NAFTA). The NAFTA was officially
implemented beginning in January 1, 1994. By the time of the onset of the tequila, crises
most of these trade reforms had been implemented, and none were reversed as a result of
the crises. After Canada, Mexico and the United States adopted NAFTA in 1994, the
growth of Mexican maquiladora plants soared. These plants typically import U.S. inputs,
process them and ship them back to the United States. Because maquiladoras involve
U.S.–Mexico trade and their growth acceleration coincided with NAFTA's inception,
many concluded that the trade agreement caused this growth. A maquiladora is a labor-
intensive assembly operation. In its simplest organizational form, a Mexican maquiladora
plant imports inputs from a foreign country—most typically the United States—processes
these inputs and ships them back to the country of origin, sometimes for more processing
and almost surely for marketing.
(Business Week, 1994)
(EPI, 1995)
Maquiladora
A maquiladora is a labor-intensive assembly operation. In its simplest
organizational form, a Mexican maquiladora plant imports inputs from a foreign country
—most typically the United States—processes these inputs and ships them back to the
country of origin, sometimes for more processing and almost surely for marketing. The
maquiladora program itself permits the inputs and the machinery used to process them to
enter Mexico without payment of import tariffs. On the return to the country of origin,
again most typically the United States, the shipper pays only such return import duties as
are applicable to the value added by the manufacturing process in Mexico. The return trip
is not under the jurisdiction of the maquiladora program. The tariff arrangements involve
the law of the country to which the processed product is reshipped. Even though most
(Federal Reserve Bank of Dallas, 2002).
Maquila
The Maquila industry is defined as a production activity of assembly shared by
two or more countries. This modality of production generates synergies between
countries; taking advantage from complementary resources such as advanced technology,
low production costs and convenient location. The Maquila industry appeared in Mexico
in the middle sixties, as a source of employment for Mexican workers along the Mexico-
U.S. border region. Many U.S. companies, decided to install assembly plants in the
Mexican border to take advantage from Mexico's cheap labor, advantageous location and
fiscal incentives. The Maquila industry in Mexico was, during the decade of the 90´s, the
Mexican industrial sector of greater growth as for its number of establishments,
production value and employment (Federal Reserve Bank of Dallas, 2002)

Mexico
The direct investment in Mexico started in 1989 and up until 1994 was $30,576
millions and from 1995 up until 2003 was $132,767. This indicates the reform attracted
more investors through NAFTA and the maquiladora programs and since the IMF
package will guarantee the investors in case of default. This indicates that direct/ fixed
investment during and after the tequila crisis was far more relevant for the economic
recovery. Because inventories are a flexible component of total investment, so their
variation should be high in periods of crisis. The role of inventories and the contribution
of fixed investment to GDP growth during and after the tequila crisis were tremendous.
Fixed investment averaged a contribution of 2.27% to the average GDP growth of 5.13%,
while inventories contributed only 0.70%.
Moreover, measure of the adequacy of foreign exchange reserves is the ratio of money
assets to foreign reserves. This is well illustrated by the Mexico’s reserves in 1989 which
was $6,740 millions, that will not cover the current account deficit $3,958 in addition to
short-term loans both total $12620 millions. The reserves in 1993 the reserves was
$25,299 millions and the current account deficit was $23,400 millions, and the short-term
loans were $36,257 millions. By adding short-term loans and the deficit will equal
$59,657 millions, this indicates the country financial crisis started well before 1989. This
eventually led to financial crisis and currency devaluation to cover the deficit gap in
addition to other major economic reforms that was induced by IMF. Reference to Mexico
capital inflow, the Mexican interest rate was fluctuating and this might encouraged
investor’s because of high Treasury bill interest rate as high as 103.7% in 1988 and was
between 14%-69% between 1989 –1995. The real interest rate for the same period was in
1993 11.2%, 199411.4% and in 199515%.
In addition, according to the data portfolio equity in Mexico started in 1990 $563
millions and eventually increased in 1992 to $5,365 millions; in [1993-$14,297 millions],
in [1994-$4,521 millions] and decreased in [1995-$520 millions], and eventually in
creased in [1996-$3,922 millions] in [1999-$1,129 millions]. Moreover, the direct
investments in Mexico started in 1989 were $3,037 millions, in [1990-$2,634 millions],
in [1994-$10,972 millions] and finally in [2001 $26,204 millions]. This indicates that
investors are effect through NFTA and the maquiladora programs and most of the direct
investment are inventory or re-export trade. Additionally, the data indicates that the
investors invest in Mexico up to 1993 possibly because of the high interest rate. Thus, the
financial crisis of 1994 affected the capital inflows. And eventually the portfolio capital
inflows are gaining momentum in Mexico; it increased from $520 millions in 1995 to
$1,129 millions in 1999 (NFTA effect through maquiladora programs).
Trade
180000
160000
140000
120000
Millions of $
100000 Exports (excl. maquila)

80000 Exports (incl. maquila)
60000
40000
20000
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Year
This indicates that Mexico is gaining investors and foreign capital trust back and the
financial situation is improving and NAFTA plays a tremendous role in this recovery.
Therefore, this illustrates that economy is correlated and intertwined together in global
investment network and the invisible hand as claimed by Adam Smith control this
interactions. Hence, values and economic risk are calculated according to the economic
status quo.
Additional examination of Mexican currency devaluation by evaluating the exchange rate
for Mexico, for example, in 1985 the currency was devaluated form [U$/371.7 pesos] to
[1986-U$/ 0.92], in the same time in the black market premium was 6.12%. In 1989 the
currency exchange rate was equal to [2.64 Peso/U$)], and the black market premium was
% 11.13. Moreover, the currency is appreciated again and in [1993- U$/3.105 peso] and
in the black market premium was 1.80%, in 1994 the exchange rate was U$/ 5.35 and
finally in 2001 U$/ 9.14. Hence, this indicates that the economy in turmoil and might not
attract portfolio equities to Mexico because Mexican currency had been devaluated in
1986, this could a sign of financial trouble and possible inflation. Therefore, the portfolio
equity according to the chart started to aim at Mexico in 1990, which was $563 millions
and was growing exponentially in 1993 was $14,297 millions and dropped in 1994 to
$4,521 millions and deficit in 1998 $665 and finally a deficit in 2002 of $104 million.
Furthermore, the Mexican Treasury bill interest rate for the same period was in 1988
103.7%, in 1990 44.99% and in 1994 14.99%, in 1996 48.44%. This indicates that
Mexico was using concretionary monetary policy (raise interest rates and lower income);
and possibly attracted equity portfolio. The real interest rate was nil before 1993. In 1993
was 11.2% in 1994 11.4% and in 1996 4.7% it looks after 1994 that Mexico was applying
expansionary monetary policy (reduce interest rates and raise income) and possibly that
NFTA programs had contributed to this stability.
The Mexican GDP growth rate for the same period 1989 was 1.3% and in [1991-
4.2%], in [1993-2%], in [1994 4.5%], in [1995 -6.2%], in [1996-5.1%], in [1997- 6.8%],
in [1998-4.9%] and declining until finally in 2003 was 1.5%. This indicated that Mexico
economic growth declined during the recovery period (1996/97). Since the GDP in 1993
was 2% and the world average was 3.3% indicating that financial crisis on the horizon
and Mexico slow growth might also contributes to the reasoning of crisis on the horizon.
Furthermore, in the pre-tequila period, imports and exports were the most dynamic
components of GDP.
The rate of growth of exports excluding maquiladora in era between (1989-1994) was
$168,479 millions and in the era of (1989-1994) including maquiladora was $277,534
millions; thus the difference is $109,055 millions and this different could be contributed
to the maquiladora affects. In the era of (1995-2000) export excluding maquiladora was
$395,531 and export including the maquiladora $706,191millions and the difference is
$310,660 millions and could also be contributed to the maquiladora programs. On the
other hand, imports excluding maquiladora in the era of (1989-1994) were $148,048 and
import including maquiladora $277,534 millions and the difference is $129,486; this also
could be attributed to the maquiladora programs. In the era of (1995-2000) the imports
excluding maquiladora $395,511 millions and including maquiladora $706,101 and the
difference is $310,590 millions and this also contributed to the maquiladora programs.
Hence, the total of the maquiladora programs form 1989 to 2000 in export sector is
$697,243 millions and the imports for the same period were $440,036. Therefor, the
maquiladora has positive affect on Mexico trade sector. Thus, this sharp rise in the
growth rate of imports reflects the effect of the appreciation of the real exchange rate that
occurred prior to devaluation at the end of 1994 and NAFTA programs played a big role
in both export and import (inventories import and re-export). Moreover, the tequila crises
was sparked by the announcement of a 15% nominal devaluation in December 1994, and
ended with a depreciation of the exchange rate of 43% by March 1995. In those years,
there was a rapid growth in imports and exports, which indicates an imbalance of trade
and economic difficulty. During the tequila crises there was an increase in the growth rate
of exports accompanied by a decrease in imports. Both tendencies certainly helped to
cushion the fall of GDP in 1995.
7. Production & Labor
This section consists of two parts; the first part presents a discussion and
assessment of the impact of globalization on the flow of labor within Mexico and the
affect of Maquiladora and Maquila programs, and to assess the impact of globalization on
labor movement and Mexico’s standard of living. Thus, examining the processes by
which globalization impacts an individual country's movement of labor and standard of
living based on my consideration and perspectives on globalization and finally an
assessment on the implications, and consequences of globalization. The second part
regard to international movements of labor and the issue of remittances.
International Movements of Labor and the Issue of Remittances
The international movements of labor and the issue of remittances; the
international movement of labor benefit the recipient countries by means of sending
money from the country where they work to their home country and this considered as
surpluses to the country current account.
For example, countries in the Middle East desire to employ foreign domestic workers e.g.
Saudi Arabia, Qatar, Kuwait, and the U.A.E. They first preferred Arabs, then Muslims,
and if there were further openings workers of other religions. Violations of basic human
rights, abuse, harassment and exploitation are more common in countries of the Middle
East than in countries of Europe or East Asia. Reasons for this situation may be seen in
special Socio Political structures, cultural orientations, and lack of familiarity with core
labor standards or the lack of labor standards. Foe example, domestic servants working in
households in these countries encounter treatment ranging from hostility, racism, or
indifference to love and affection. Just as governments in Gulf States countries distance
themselves from guest workers, so housemaids’ sponsors maintain a similar social
distance within households and there is no labor standards for the housemaids. By
separating the maid's living quarters from those of the family, limiting her mobility,
curtailing her socializing, and imposing hard work and discipline, employers create and
reinforce social separations. At the same time, many housemaids work in the same
household for four, eight, or even twelve years at a stretch. Housemaids perform the most
intimate of services for their employers, and some said with evident love and loyalty that
their employers were like a second family. International movement of labor benefits the
recipient country in this case the Gulf countries by supplying labors to their demands,
which here is mutual benefits (Estuarine Research Federation, 2005).
The direct foreign investment benefited the recipient country and how international
movement of labor benefit the recipient country. In this case I have chosen Sudan as an
example of labor and professional export. According to Stalker (1994) Sudan sent large
numbers of emigrants overseas, in total about 500 thousands workers were abroad
including two thirds of the country’s technical and professional workers. In 1985 the
estimated number to be around 500,000, which was 60% of the total national stock of
skilled workers. According to the research the total number of the Sudanese emigrants
was 1,764,000 during the period from 1978 to 1991. The majority of the total Sudanese
emigrants were in Saudi Arabia were 48.3 % and 40% in 1990 and 1996 respectively the
labor market policy of Saudi Arabia since the early 19970 gave priority to Arab
applicants for work permits, as the rapid economic growth in the country led to severe
shortages in labor. The national workforce was neither involved in highly professional;
jobs nor in dirty dangerous and physically demanding jobs in the modern sector
development. This increased labor demand in the main receiving countries. Sudan,
therefore, became one of the major supplies of labor. There were approximately (45.2%
and 52%) in 1990 and 1996 respectively of Sudanese emigrants who were working in
neighboring countries, Libya, Iraq, Kuwait, Qatar and United Arab Emirate (Estuarine
Research Federation, 2005).
The following are summary of Sudanese labor migration:
• The majority of Sudanese emigrants are in Saudi Arabia (48.3%).
• The main motive for emigration from Sudan is to find a better job opportunity
75.8%. This achieved through relatives and friends for 48.3% of the
emigrants.
• Emigration involves predominantly males, where 89.3% of them are males and
57.7% of them are in the age group (25-30).
• The educational attainment reflects selectivity of emigration about 42.1% are
secondary certificate and above holders.
• The category of professional, technician’s senior officers and clerks
represented a high percentage.
Moreover, the employment status shows they are employees for 67.9% of the emigrants.
The long list of reasons for Sudanese economy to progress during the last two
decades revealed no single cause was sufficient to explain the deterioration and
depression even though the Sudanese foreign worker contribute tremendously to the
Sudan current account. Thus uneven link with global economy handicapped utilization of
the Sudan huge resources of labor. Given the above conditions the average wage as
estimated in 1996 by the ministry of manpower is 66,080 Sudanese pounds, which is
equal to US40. However, 54.4% of the monthly wage labor has salaries less than or equal
to minimum wage that is insufficient to the cost of living in Sudan. On the other hand the
unavailability of adequate jobs with suitable wage cause unemployment among
graduates.
The positive aspects of emigration include remittances, high tax obligations, and
experience and skills gained. Emigrant families are more likely to improve their
dwellings, own assets, and own durable consumer goods.
Emigration policy recommendations include a) Counting emigrants in fertility studies, b)
Programs to tax the income of emigrants' wives, c) Educational policies for the children
of returning emigrants, d) Investment projects directed toward emigrant women, f) Media
campaigns to inform and acculturate emigrants, g) Family planning programs for
emigrants, and making use of emigrants to fund necessary commodities and export
(Estuarine Research Federation, 2005).
Another impact of having Sudanese immigrate legally or illegally to the Saudi
Arabia and the negative effects on the Sudan emigration has led to the loss of a large
number of skilled personnel. This has inflicted a heavy cost on the economy representing
a huge loss of the country’s investment in human capital. The compensation for this loss
of skilled labor has been the remittances that Sudanese workers abroad have sent back to
their families. However, there is little evidence that remittances have benefited lower-
income households. According to the results of the 1996 Migration and Labor Force
Survey, 90% of all remittances were sent back by the 62% of emigrants with a secondary
school education or higher. This statistic suggests that remittances are likely to have had a
disequilibrium impact on the distribution of income within Sudan. In addition to
receiving a small share of remittances, low-income households are adversely affected by
the loss of emigrant labor. For example, agricultural households first report mainly a
labor shortage as a result of emigration of a household member. Eventually the main
impact is felt through the constraint. Eventually the main impact is felt through the
constraint placed on cultivating land and the ensuing reduction of production. About 86
per cent of agricultural households reported this constraint as a problem that was
attributable to emigration (Estuarine Research Federation, 2005).
Industrial Development and Employment
Industry has been an anemic generator of employment in Sudan. The share of
industry in GDP fell continuously from the mid 1980s until the mid 1990s. But after the
mid 1990s, industry began to grow. Most of this growth was fuelled by the oil industry
and foreign direct investment and took place in large urban centers such as Khartoum and
Port Sudan. Between 1998 and 2001, industry grew by 10 per cent per year (World Bank,
2003).
Flow of Labor within Mexico
The Mexican economy experienced a sharp contraction in 1995, after the Peso
devaluation of December 22, 1994. The GDP growth rate in 1987 was -3.1%, in [1989-
1.3%], in [1990-4.2%], in [1994-4.5%] and reached rate of -6.2% in 1995, and became
positive again during the first quarter of 1996. In 1996 and 1997 the Mexican economy
grew at healthy rates of 5.1% and 6.8% respectively. Thus, the decisive response of the
fiscal and monetary authorities supported by a generous financial package of billions of
dollars announced in March 9, 1995, were crucial for a rapid recovery of lost investor
confidence. These policies prompted a rapid stabilization of the currency and a
turnaround in investment and economic activity.
Furthermore, in 1991,Mexico the U.S. and Canada launched the negotiations over
the terms of the North American Free Trade Agreement (NAFTA). The NAFTA was
officially implemented beginning in January 1, 1994. By the time of the onset of the
tequila, crises most of these trade reforms had been implemented, and none were reversed
as a result of the crises. After Canada, Mexico and the United States adopted NAFTA in
1994, the growth of Mexican maquiladora plants soared. These plants typically import
U.S. inputs, process them and ship them back to the United States. Because maquiladoras
involve U.S.–Mexico trade and their growth acceleration coincided with NAFTA's
inception, many concluded that the trade agreement caused this growth. A maquiladora is
a labor-intensive assembly operation. In its simplest organizational form, a Mexican
maquiladora plant imports inputs from a foreign country—most typically the United
States—processes these inputs and ships them back to the country of origin, sometimes
for more processing and almost surely for marketing (Canada International Trade, 1999).
The direct investment in Mexico started in 1989, which was $3,037 million, in
[1990-$2,634 millions], in [1994-$10,972 millions], in [1995-$9,526 millions], in [1997
$12,831 millions], in [2000-$1,6075 millions], and in [2001-$26,204 millions]. This
indicates the reform attracted more investors through NAFTA and the Maquiladora
programs and since the IMF package will guarantee the investors in case of default. This
indicates that direct/ fixed investment during and after the tequila crisis was far more
relevant for the economic recovery. Because inventories are a flexible component of total
investment, so their variation should be high in periods of crisis. The role of inventories
and the contribution of fixed investment to GDP growth during and after the tequila crisis
were tremendous. Fixed investment averaged a contribution of 2.27% to the average GDP
growth of 5.13%, while inventories contributed only 0.70%.
In addition, the Mexican GDP growth rate for the same period 1989 was 1.3%, in 1991,
in [1993-4.2%], in [1993- 2%], in [1994-4.5%], in 1995 was -6.2%, in 1996 5.1%, in
[1997-6.8%], in [1998-4.9%] and declining until finally in 2003 was 1.5%. This indicated
that Mexico economic growth declined during the recovery period (1996/97). Since the
GDP in 1993 was 2% and the world average was 3.3% indicating that financial crisis on
the horizon and Mexico slow growth might also contributes to the reasoning of crisis on
the horizon. Furthermore, in the pre-tequila period, imports and exports were the most
dynamic components of GDP. The rate of growth of exports excluding Maquiladora in
era between (1989-1994) was $168,479 millions and in the era of (1989-1994) including
maquiladora was $277,534 millions; thus the difference is $109,055 millions and this
different could be contributed to the maquiladora affects. In the era of (1995-2000) export
excluding maquiladora was $395,531 and export including the maquiladora
$706,191millions and the difference is $310,660 millions and could also be contributed to
the maquiladora programs. On the other hand, imports excluding maquiladora in the era
of (1989-1994) were $148,048 and import including maquiladora $277,534 millions and
the difference is $129,486; this also could be attributed to the maquiladora programs. In
the era of (1995-2000) the imports excluding maquiladora $395,511 millions and
including maquiladora $706,101 and the difference is $310,590 millions and this also
contributed to the maquiladora programs. Hence, the total of the maquiladora programs
form 1989 to 2000 in export sector is $697,243 millions and the imports for the same
period were $440,036.
Therefor, the maquiladora has positive affect on Mexico trade sector. Thus, this sharp rise
in the growth rate of imports reflects the effect of the appreciation of the real exchange
rate that occurred prior to devaluation at the end of 1994 and NAFTA programs played a
big role in both export and import (inventories import and re-export). Moreover, the
tequila crises was sparked by the announcement of a 15% nominal devaluation in
December 1994, and ended with a depreciation of the exchange rate of 43% by March
1995. In those years, there was a rapid growth in imports and exports, which indicates an
imbalance of trade and economic difficulty. During the tequila crises there was an
increase in the growth rate of exports accompanied by a decrease in imports. Both
tendencies certainly helped to cushion the fall of GDP in 1995. Thus, there is no doubt
maquiladoras are an important part of Mexico's international trade picture. Year in and
year out, Maquila plants are responsible for more than 40% of Mexico's exports. Over the
years, with or without NAFTA, the maquiladora industry has grown substantially. During
the five years prior to NAFTA, maquiladora employment grew 47%. But over the first
five years after NAFTA, employment growth soared 86%. This growth was not simply a
matter of existing plants taking on more workers but of rapid expansion in the number of
plants. The 1,789 in-bond plants at the end of 1990 grew to 2,143 at the end of 1993—
just before NAFTA—and to 3,703 by the end of 2000. The acceleration of foreign direct
investment under NAFTA also contributed to the creation of more than half-million new
employment opportunities in the U.S.–Mexico border region. For example, NAFTA
allows U.S.–Mexican production-sharing operations in the maquiladora mode but without
the maquiladora program. In any case, if maquiladora production and trade were linked to
NAFTA, their importance for modeling NAFTA's impacts would be markedly different
than if NAFTA did not influence a large portion of U.S.–Mexico trade. Therefore,
globalization would not eliminate the advantages of NAFTA since every country would
be facing the same conditions. For example, if maquiladora activity is not affected by
NAFTA. On the other hand, NAFTA may have encouraged maquiladora expansion by
eliminating all Mexican programs that favored specific industries. NAFTA also
eliminated quotas, which especially impacted the textile industry. NAFTA limits on
Maquiladora domestic sales, which affects the Mexico national economy. But in 2001 the
NAFTA limit on Maquiladora domestic sales was totally relaxed so that, if they so desire,
Maquiladoras are now allowed to sell 100 percent of their production domestically.
Moreover, NAFTA also liberalized trade and investment in the textiles and apparel sector
the Maquiladora industry’s second-largest employer. Moreover, local-content rules in
Mexico’s automotive sector were relaxed to allow treatment of Maquiladoras as national
suppliers for purposes of complying with local-content requirements. Finally, prior to
NAFTA, Maquiladora goods entering the United States were assessed duties on the part
of the good not of U.S. origin. With NAFTA, the value added to Maquiladora output in
Mexico, along with U.S.-origin inputs, is now typically excluded from duties (Federal
Reserve Bank of Dallas, 2002).

The maquiladora employment fluctuations are Mexican-to-U.S. and Mexican-to-Asian
manufacturing wage ratios. While the relationship between U.S. industrial production
growth and maquiladora growth is positive, the relationship between these wage ratios
and maquiladora growth is negative. In other words, when Mexican wages increase
relative to foreign wages, Maquila employment growth declines (Federal Reserve Bank
of Dallas, 2003).
The 2001 U.S. recession took a heavy toll on Mexico’s Maquiladora industry. From
October 2000 to June 2002, the industry lost more than 240,000 jobs; plants in Border
States accounted for about 76 percent of these losses. Although the layoffs along the
border have far outweighed those in the interior, the proportions reflect the concentration
of Maquiladora jobs in Border States, which account for about 77% of total Maquiladora
employment. The number of Maquiladora plants has also been affected. Whereas
employment growth turned negative in October 2000, the net number of plants began to
fall a bit later, in mid-2001. From May 2001 to June 2002, about 420 plants closed, three-
fourths of them in Border States. While some media estimates repeat employer assertions
that Maquiladora workers earn as much as $2.00-$2.50 per hour, and compare this to
35¢/hour in China, the actual average Maquiladora wage is generally about $6-8 per day.
Meanwhile, a study by the Economics Faculty of the National Autonomous University in
Mexico City says Mexican wages have lost 81% of their buying power. Twenty years
ago, it says, the minimum wage could pay for 93.5% of a family's basic necessities, while
today it only buys 19.3% (Maquila Portal, 2004).
Foreign firms paying wage according to the study Making The Invisible Visible: A Study
of Maquila Workers in Mexico-2000, in Matamoros, across from Brownsville, Texas, a

family of four needs 193.86 pesos a day to reach a sustainable living wage. Based on pay
slips collected from a number of Maquiladora workers, a majority takes home less than
55.55 pesos (approximately US$6.00) a day, which is 28.6% of what a family of four
people, needs to meet its basic needs. One minimum wage salary in Matamoros provides
only 19.6% of what a family of four needs to earn (Maquila Workers, 2003).
Maquiladora Census March 20005:
Number of Plants 2,821

Employment 1,124,586
Direct Labor Wage $ 1.88-Hour
Technicians Wage $ 5.19-Hour
Gross Production $ 91.64 billion
(Maquila Workers, 2003)
The impact of Maquiladora Program's
The impact of Maquiladora program's on labor welfare in Mexico is based on the
fact that the Mexican government has long demonstrated a persistent pattern of failure to
protect the rights of its female manual laborers during Mexico’s struggle to become an
industrialized nation. The Mexican government has allowed foreign investment and the
quest for economic stability to take precedence over the well-being of its own citizens
who work in the Mexican Maquiladora factories. As a result, female Maquiladora has
endured discrimination and marginalization. The maquiladora factories are havens for
foreign investment in Northern Mexico because labor is cheap and plentiful, especially
female labor workers. A direct cause of this is the Mexican government’s willingness to
let women remain the cheapest form of labor by allowing foreign investors to circumvent
the national labor laws that would increase costs. This willingness to look the other way
is compounded by the ineffective prophylactic obligations of the North American Free

Trade Agreement (NAFTA) and its labor side agreement, the North American Agreement
on Labor Cooperation (NAALC). The trade agreements fail to fully address the needs and
concerns of female maquiladora workers and fall short of enforcing Mexico’s national
labor laws. “Many critics argue that the maquiladora program is transforming Mexico
into a ‘maquiladora country’ rather than developing a strong Mexican industrial base that
will sustain Mexico’s growth into the future, and that maquiladoras are failing to provide
the technology transfer necessary to develop Mexico’s own national industries.” “Further,
the critics contend, the maquiladora industry is changing Mexico’s value system and
culture and thus profoundly affecting Mexico’s national identity (Nesl Journal, 2004).
The ethical issues and the environmental restrictions may have created another
disincentive to operate under the maquiladora program. In some cases, waste-handling
and treatment regulations were stricter for maquiladoras than for other Mexican plants
making the same products and exporting to the United States. Manufacturing firms'
ability to obtain duty-free benefits under NAFTA without additional cost or
environmental restrictions, which maquila industry membership would impose—could
have encouraged such firms to operate outside the maquiladora program post-NAFTA.
NAFTA also eliminated quotas, which especially impacted the textile industry. With no
constraints on the amount of textiles that could be exported back to the United States,
textile firms may have had an incentive to construct maquila operations in Mexico. Many
observers have concluded that NAFTA's treatment of the textile/apparel sector has
significantly affected the maquila growth in that industry.
Furthermore, the effect of a globally free environment for the movement of labor
in Mexico for example, in the struggle for their rights, women workers confronts various
enemies: the foreign boss, the Mexican managers, and the corrupt, "phantom" unions.
These unions not only do not fight for the workers' rights, but the women do not even
know them, have never seen their leaders, and when a conflict arises in a factory,
management informs the workers that "their" unions have accepted these or those
conditions. One example of a "phantom" union is the Confederation Regional de Obreros
Mexicanos (CROM), or Regional Confederation of Mexican Workers. In Baja California,
the CROM sells labor protection directly to the companies. The CROM makes deals
about working conditions and salaries with management without the workers' knowledge.
In return it receives union fees deducted from the payroll directly from management.
Obviously, the government and companies prefer this model of union organization. The
CROM uses similar tactics to the Confederacion de Trabajadores Mexicanos (CTM, or
Confederation of Mexican Workers), which also claims to represent maquila workers. In
Tamaulipas the CTM was forced by the movement of women workers of maquila to
subscribe to Internal Rules of Work providing for the minimum salary established by the
Federal Labor Law, even though it is not firms guarantee that these minimums are met
(Valadez, C and Cota, G, 2002).
8. International Monetary Fund
IMF Bailouts
According to the Economist, April 23rd 2005, the trade balance is a deficit of $0.9
billions and the current account equal to $4.5 billions and the foreign reserve equal to
$48.5 billions. Hence, these reforms might have assisted Thailand financial recovery, but
still, the IMF reforms were aimed at the foreign investors. IMF reforms as explained by
Michel Chossudovsky professor of economics, at University of Ottawa: The

appropriation of global wealth through this manipulation of market forces is routinely
supported by the IMF's lethal macro-economic interventions which act almost
concurrently in ruthlessly disrupting national economies all over the World. In Korea,
Indonesia and Thailand, institutional speculators pillaged the vaults of the central banks
while the monetary authorities sought in vain to prop up their ailing currencies. World's
largest merchant banks including: Lehman Brothers; Credit Suisse-First Boston,
Goldman Sachs and UBS/SBC Warburg Dillon Read. The World's largest money
managers set countries on fire and are then called in as firemen (under the IMF "rescue
plan") to extinguish the blaze. They ultimately decide which enterprises are to be closed
down and which are to be auctioned off to foreign investors at bargain prices. The IMF
Bailouts funds:
• Under repeated speculative assaults, Asian central banks had entered into multi-
billion dollar contracts (in the forward foreign exchange market) in a vain attempt
to protect their currency. With the total depletion of their hard currency reserves,
the monetary authorities were forced to borrow large amounts of money under the
IMF bailout agreement.
• In other words, those who guarantee the issuing of public debt (to finance the
bailout) are those who will ultimately appropriate the loot e.g. as creditors of
Korea or Thailand such as they are the ultimate recipients of the bailout money
(which essentially constitutes a "safety net" for the institutional speculator). The
vast amounts of money granted under the rescue packages are intended to enable
the Asian countries meet their debt obligations with those same financial
institutions; which contributed to precipitating the breakdown of their national

currencies in the first place. As a result of this vicious circle, a handful of
commercial banks and brokerage houses have enriched themselves beyond
bounds; they have also increased their stranglehold over governments and
politicians around the World.
• Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the
"financial environment" in which the global banks and money managers wage
their speculative raids. The global banks are craving for access to inside
information. Successful speculative attacks require the concurrent implementation
on their behalf of "strong economic medicine" under the IMF bailout agreements.
The "big six" Wall Street commercial banks (including Chase, Bank America,
Citicorp and J. P. Morgan) and the "big five" merchant banks (Goldman Sachs,
Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted
on the clauses to be included in the bailout agreements. In the case of Korea's
short-term debt, Wall Street's largest financial institutions were called in on
Christmas Eve (24 December 1997), for high level talks at the Federal Reserve
Bank of New York.14 (Chossudovsky, 2003)
Globalization and Capital Flows
Globalization expands and accelerates the movement and exchange of ideas and
commodities over vast distances. It is common to discuss the phenomenon from an
abstract, global perspective, but in fact globalization's most important impacts are often
highly localized. This section explores the various manifestations of interconnectedness
in the world, noting how globalization affects real people and places. But while Mexico
benefited in the early days, especially with exports from factories near the United States
border, those benefits have waned, both with the weakening of the American economy
and intense competition from China. Meanwhile, poor Mexican corn farmers face an
uphill battle competing with highly subsidized American corn, while relatively better-off
Mexican city dwellers benefit from lower corn prices. And as all but one of Mexico's
major banks have been sold to foreign banks, local small- and medium-sized enterprises
particularly in non-export sectors like small retail and worry about access to credit.
Growth in Mexico over the past 10 years has been a bleak 1 percent on a per capita basis,
which is better than in much of the rest of Latin America, but far poorer than earlier in the
century. From 1948 to 1973, Mexico grew at an average annual rate of 3.2 percent per
capita; by contrast, in the 10 years of NAFTA, even with the East Asian crisis, Korean
growth averaged 4.3 percent and China's 7 percent in per capita terms. These outcomes
should not have come as a surprise. NAFTA does give Mexico a slight advantage over
other trading partners. But with its low tax base, low investment in education and
technology, and high inequality, Mexico would have a hard time competing with a
dynamic China. NAFTA enhanced Mexico's ability to supply American manufacturing
firms with low-cost parts, but it did not make Mexico into an independently productive
economy (Stiglitz, 2002). Additionally, NAFTA began in 1994 for Canada the United
States and Mexico, there were more than few skeptics. Six years later, the figures speak
for themselves: total merchandise trade across North America surpassed $752 billions in
1998. Canada’s merchandise trade with Mexico doubled over the same period, reaching
$9 billion a year. In the last four years an estimated 1.5 million new jobs have been
created in Mexico alone. Since NAFTA there were 15,883 New Mexican export firms
created. Throughout history, adventurers, generals, merchants, and financiers have

constructed an ever-more-global economy. Today, unprecedented changes in
communications, transportation, and computer technology have given the process new
impetus. As globally mobile capital reorganizes business firms, it sweeps away regulation
and undermines local and national politics. Globalization creates new markets and
wealth, even as it causes widespread suffering, disorder, and unrest. It is both a source of
repression and a catalyst for global movements of social justice and emancipation. These
materials look at the main features of globalization, asking what is new, what drives the
process, how it changes politics, and how it affects global institutions like the UN
(Stiglitz, 2004).
Furthermore, globalization advantages are advances in communication and
transportation technology, combined with free-market ideology, have given goods,
services, and capital unprecedented mobility. Northern countries want to open world
markets to their goods and take advantage of abundant, cheap labor in the South,
policies often supported by Southern elites (few people that disregard human parity and
they advance themselves not the people). They use international financial institutions
and regional trade agreements to compel poor countries to "integrate" by reducing
tariffs, privatizing state enterprises, and relaxing environmental and labor standards. The
results have enlarged profits for investors but offered pittances to laborers, provoking a
strong backlash from civil society. This was obviously demonstrated by the IMF bailouts
and reforms that was initiated, first to pay investors (North institutions) and undermined
these nations actual recovery. Thus, WTO and the IMF in their effort of economic
globalization should concentrate and promote sustainable development in the South.

Because if the North neglected this issue; the problem will still exist and unfortunately it
will grow exponentially and eventually affect the North.
Globalization and Economy
Advances in communication and transportation technology, combined with free-market
ideology, have given goods, services, and capital unprecedented mobility. Northern
countries want to open world markets to their goods and take advantage of abundant,
cheap labor in the South, policies often supported by Southern elites. They use
international financial institutions and regional trade agreements to compel poor countries
to "integrate" by reducing tariffs, privatizing state enterprises, and relaxing environmental
and labor standards. The results have enlarged profits for investors but offered pittances
to laborers, provoking a strong backlash from civil society. The following section will
analyze economic and globalization, and examines how it might be resisted or regulated
in order to promote sustainable development i.e. Mexico. For example, in 1982,
Mexican economical development had accumulated a US$8 billion backlog in payments
on its external public debt and faced the prospect of another US$14 billion accumulating
over the next three years. Domestic demand was reduced as a result of the sharp drop in
real wages: between 1982 and 1987, 45 and 40 percent reduced minimum and contractual
wages, respectively, in real terms. The decline in international oil prices in 1986 and the
collapse of the Mexican stock market in 1987 wiped out all hopes of recovery, and the
government began its quest for a new adjustment program. The Mexican government
appealed to the IMF for assistance. After consultations, an Enhanced Fund Facility
totaling US$3.9 billion, equivalent to 450 percent of Mexico's IMF quota, was approved.
The stated objectives of the three-year package were to assist in reducing the external
deficit, control inflation, restart the growth process, increase employment and lower the
fiscal deficit. A restrictive monetary policy was to be adopted in order to maintain price
stability. The exchange rate would be adjusted and exchange controls were to be replaced
by a dual-exchange-rate system. In addition, the fiscal deficit would have to be cut from
8.5 to 5.5% of GDP. The IMF corresponded by supporting the renegotiation of US$23
billion of Mexico's foreign debt, the extension of amortization terms from six to ten
years, and the reduction of interest rates from 2.25 points to 1.5 over the London Inter-
bank Offer Rate (Libor), and from 2.2 to 1.2 points over the U.S. prime rate. In 1985, the
third year of the agreement, the fall in oil prices translated into renewed difficulties and
additional pressure on Mexico's balance-of-payments position. The Mexico City
earthquake further aggravated the economic situation. During 1986, the Mexican
economy was subjected to another serious external shock as oil prices plummeted.
Foregone income due to the depressed prices amounted to more than US$11 billion or six
percent of GDP. In 1985, the third year of the agreement, the fall in oil prices translated
into renewed difficulties and additional pressure on Mexico's balance-of-payments
position. The Mexico City earthquake further aggravated the economic situation. During
1986, the Mexican economy was subjected to another serious external shock as oil prices
plummeted. Foregone income due to the depressed prices amounted to more than US$11
billion or six percent of GDP. The government once again appealed to the IMF, and an
agreement was signed providing emergency support for an amount equivalent to 1.4
billion in Special Drawing Rights (SDRs). In 1989 a new agreement was reached with the
IMF for credits of 2.7 billion SDRs (equivalent to US$3.6 billion), to be used in part for
the servicing of rescheduled external debt. Once again, the objective of the agreement
was to attempt to restart growth and generate employment, as well as to reduce inflation
to 18 percent. Between 1990 and 1994, Mexico increasingly relied on short-term capital
inflows to finance its current-account deficit, and there was no need for other agreements
with the IMF. The trade deficit was responsible for 65 percent of the current-account
imbalance (US$29662 billion). Capital flows ceased after the first quarter of 1994,
reserves from $25299 billion in 1993 to $6441 billion in 1994. High interest rates were
offered as a risk premium, but when portfolio investments failed to materialize,
protection was added against exchange-rate changes by dollar-denominating US$28
billion in Treasury bills (Tesobonos) (Nadal, 2002)
Globalization of Politics
Globalization of politics, traditionally politics has been undertaken within national
political systems. National governments have been ultimately responsible for maintaining
the security and economic welfare of their citizens, as well as the protection of human
rights and the environment within their borders. With global ecological changes, an ever
more integrated global economy, and other global trends; political activity increasingly
takes place at the global level. Under globalization, politics can take place above the state
through political integration schemes such as the European Union and through
intergovernmental organizations such as the International Monetary Fund, the World
Bank and the World Trade Organization. Political activity can also transcend national
borders through global movements and NGOs. Civil society organizations act globally by
forming alliances with organizations in other countries, using global communications
systems, and lobbying international organizations and other actors directly, instead of
working through their national governments. Hence, if we examine this point from the
corrupt civil services and governments in the South, the global environment might assist
the South to implement new measures and adapt government that will promote the
interest of their people i.e. environment. Therefore, globalization which has played out in
this country around clashes over the North America Free Trade Agreement (NAFTA), the
World Trade Organization (WTO), and most recently trade status for China, is not just
about trade. Corporations are not only moving goods across borders—they are also
moving capital, factories, and jobs. The fight is not just about tariffs but all kinds of laws
protecting labor, defending the environment. Globalization is also threatening many
useful public services with private corporations demanding the right to obtain Social
Security, schools, airports, prisons, transit systems—and even our drinking water. Hence,
the impact on U.S. workers has been far greater than the several hundred thousand jobs
that have been directly lost to “free trade.” The mere threat by bosses to relocate jobs has
had a chilling effect on labor relations. Workers displaced by job movement have taken a
cut in wages and benefits while most other workers, wary of relocation threats, have
settled for stagnant wages—even in the midst of what is supposed to be unprecedented
prosperity. Thus, if globalization prevails the living standards of working people
everywhere will be driven down to the lowest level anywhere. The only effective defense
is to promote workers standards everywhere through organization and solidarity. In
addition, an important issue the environment protection in correlation with globalization
The U.S. labor movement has made great progress in understanding globalization and
taking initiatives to fight it (Kclabor, 2003).
According to Michel Chossudovsky professor of economics, at University of Ottawa
explains how IMF reform and globalization affect the South “Following a scheme
devised during the Mexican crisis of 1994-95, the bailout money, however, is not
intended "to rescue the country"; in fact the money never entered Korea, Thailand or
Indonesia; it was earmarked to reimburse the "institutional speculators", to ensure that
they would be able to collect their multi-billion dollar loot. In turn, the Asian tigers have
being tamed by their financial masters. Transformed into lame ducks-- they have been
"locked up" into servicing these massive dollar denominated debts well into the third
millennium. To finance these multi-billion dollar operations, only a small portion of the
money comes from IMF resources: starting with the Mexican 1995 bail-out, G7 countries
including the US Treasury were called upon to make large lump-sum contributions to
these IMF sponsored rescue operations leading to significant hikes in the levels of public
debt. Yet in an ironic twist, the issuing of US public debt to finance the bailouts is
underwritten and guaranteed by the same group of Wall Street merchant banks involved
in the speculative assaults (Chossudovsky, 2003).

Business Week (2002)
9. Conclusion
On conclusion, first, the portfolio capital during the 1990s the lending boom in
Thailand was 58% comparing to Mexico and the ‘Tequila effect’ countries, between 1990
and 1994 the lending boom in Mexico 116%. In Thailand the lending boom was
significantly larger for finance and securities companies was 133%. By 1997, non-
performing loans of local banks in Thailand were 15%. Asset deflation and the sharp drop
in the value of the collateral especially real estate triggered the irreversible surge in the
share of non-performing loans (Corestti, et al, 1998).

Country may suffer a short-run liquidity problem when available stock of reserves is low
relative to the overall burden of external debt services (interest payment plus renewal of a
loans coming to maturity) Liquidity problems emerge when panicking external creditors
—perhaps in response to rapid devaluation—become unwilling to role over existing
short-term credit. If a large fraction of a country’s external liabilities are short-term, a
crisis may take a form of pure liquidity shortfall. Hence, the inability by country to roll
over its short-term liabilities for example the experience of Mexico with its short-term
public debit (p. 30), which is analogues of had happened in Thailand, Mexico and
Argentina banking system.
In 1999 the per capita growth rate in Thailand 3.33%, Mexico 1.737% and Argentina
-4.66%, by contrast to 1997, Mexico 3.38%, Thailand 4.8% and Argentina 4.18%. This
indicates the economy still staggering in theses nations.
millions, Mexico deficit of $7454 millions, and Argentina deficit $12,344. This indicates
the unbalance between debit and current account balances, which might indicate financial
problem on the horizon and might influence currency exchange rate and inflows of
portfolio equities.
The IMF bailouts and the crises in Latin America, Asia, and elsewhere have occurred
because of flawed domestic policies and economics culture. Bailouts by the IMF or the
U.S. Treasury only encourage further crises and aggravate current ones. The similarities
between the remedy or IMF reforms are obvious in IMF agendas and polices. IMF
required from these government to follow certain pattern, i.e. privatization, and free
foreign trade barriers, law and tariffs reform and so on. But these economic culture and
situations mentioned above varies in their contexts and implementations. Hence,
willingness that IMF microeconomic reforms will be followed is unknown and what are
the real economic barriers beside economic infrastructure and bureaucracy in civil service
sector. I presumed that IMF executives forgot to bear in mind these economies are not in
equilibrium and economic infrastructures are at minimal and the existence of corruptions
and bureaucracies in the civil services sectors in these nations. Therefore, the economy
mal function caused the currency to be devaluated and appreciated that make cost of
living increase sometimes by 1000% in some case. Therefore, the problem is deep than
the IMF considers. Healthier and successful economy need economic infrastructure and
needs cadres to be able to run such economy. These nation lack complete economic
infrastructure and the working force is not balanced. However, most IMF reforms were
directed to attempts to alleviate poverty in these nations but, to alleviate poverty, these
nation first need economic infrastructure and ability to minimize the corruptions and
bureaucracies practices in civil services sector and formal structure to the education
system. By contrasting these economies with portfolio capital inflow discussion. During
the 1990s the lending boom in Thailand was 58% comparing to Mexico and the ‘Tequila
effect’ countries, between 1990 and 1994 the lending boom in Mexico 116%. In Thailand
the lending boom was significantly larger for finance and securities companies was
133%. By 1997, non-performing loans of local banks in Thailand were 15%. Asset
the irreversible surge in the share of non-performing loans (p. 28).

Hence, the IMF reforms were in process in these nations and the real problem was not
addressed. For example, economic infrastructure, technology, education, health, among
many things that under developing countries required before the economy can speed up
or implemented correctly. The following are summary for theses countries problems:
• Argentina problem started well before the 2001 financial crisis. The government
spending at state and federal levels has increased from 38.9 percent of gross
domestic product to 49.4% since 1997. Hence, IMF introduced reforms and
financial assistance might work well if Argentina adapts feasible macroeconomic
strategy. The Argentine economy has performed poorly since 1995, growing at an
annual rate of 1 percent per capita on average. There are two reasons for that poor
performance. Argentina has one of the most regulated labor markets in the world.
Those rules make it difficult and costly for employers to dismiss workers, so
companies don't hire workers in the first place. Not surprisingly, the rate of
unemployment in Argentina has hovered around 15 percent since 1995. The rate
of underemployment (the percentage of the labor force working less than 35 hours
per week but wishing to work more) is also around 15%.
• Thailand problem was prior to 1997 financial crisis, for example external
developments problem, and weakness in financial and corporate systems. The
external imbalances were a reflection both of strong private capital inflows and of
high domestic private investment rates, and were exacerbated, prior to the crisis,
by appreciation of the U.S. dollar to which the currencies of the countries
concerned were formally or informally pegged.

• By 1982, Mexico had accumulated a US$8 billion backlog in payments on its
external public debt and faced the prospect of another US$14 billion
accumulating over the next three years (Cato Institute, 2001).
The global financial crisis in Asia and South America; during the 1990s the lending
boom in Thailand was 58% comparing to Mexico and the ‘Tequila effect’ countries,
between 1990 and 1994 the lending boom in Mexico 116%. In Thailand the lending
boom was significantly larger for finance and securities companies was (133%). By 1997,
non-performing loans of local banks in Thailand were 15%. Asset deflation and the sharp
drop in the value of the collateral especially real estate triggered the irreversible surge in
the share of non-performing loans (Corestti, et al. 1998).
Reference to the financial crisis and the contagion effects, during the 1990s the
lending boom in Thailand was 58% comparing to Mexico and the ‘Tequila effect’
countries, between 1990 and 1994 the lending boom in Mexico 116%. In Thailand the
lending boom was significantly larger for finance and securities companies was 133%.
By 1997, non-performing loans of local banks in Thailand were 15%. Asset deflation and
the sharp drop in the value of the collateral especially real estate triggered the irreversible
surge in the share of non-performing loans (Corestti, et, al. 1998).
public debit that is analogues of had happened in Thailand, Mexico and Argentina
banking system.
public debit (p. 30), which is analogues of had happened in Thailand, Mexico and
Argentina banking system. In 1999 the per capita growth rate in Thailand 3.33%, Mexico
1.737% and Argentina -4.66%, by contrast to 1997, Mexico 3.38%, Thailand 4.8% and
Argentina 4.18%. This indicates the economy still staggering in theses nations. Therefore,
these countries total debit, for example in Thailand in 1997 was $109,669 millions,
Mexico in 1997 $147,632 millions and in Argentina in $128,411 millions. By contrast the
balance on the current account in 1997 for Thailand was a deficit of $3021 millions,
Mexico deficit of $7,454 millions, and Argentina deficit $12,344. This indicates the
unbalance between debit and current account balances, which might indicate financial
portfolio equities.
The IMF bailouts and the crises in Latin America, Asia, and elsewhere have occurred
because of flawed domestic policies and economics culture. Bailouts by the IMF or the
U.S. Treasury only encourage further crises and aggravate current ones. The similarities
between the remedy or IMF reforms are obvious in IMF agendas and polices. IMF
required from these government to follow certain pattern, i.e. privatization, and free
foreign trade barriers, law and tariffs reform and so on. But these economic culture and
situations mentioned above varies in their contexts and implementations. Hence,
willingness that IMF microeconomic reforms will be followed is unknown and what are
the real economic barriers beside economic infrastructure and bureaucracy in civil service
sector. In 1999 the per capita growth rate in Thailand 3.33%, Mexico 1.737% and
Argentina -4.66%, by contrast to 1997, Mexico 3.38%, Thailand 4.8% and Argentina
4.18%. This indicates the economy still staggering in theses nations.
I presumed that IMF executives forgot to bear in mind these economies are not in
equilibrium and economic infrastructures are at minimal and the existence of corruptions
and bureaucracies in the civil services sectors in these nations. Therefore, the economy
mal function caused the currency to be devaluated and appreciated that make cost of
living increase sometimes by 1000% in some case. Therefore, the problem is deep than
the IMF considers. Healthier and successful economy need economic infrastructure and
needs cadres to be able to run such economy. These nation lack complete economic
infrastructure and the working force is not balanced. However, most IMF reforms were
directed to attempts to alleviate poverty in these nations but, to alleviate poverty, these
nation first need economic infrastructure and ability to minimize the corruptions and
bureaucracies practices in civil services sector and formal structure to the education
system. By contrasting these economies with portfolio capital inflow discussion. During
the 1990s the lending boom in Thailand was 58% comparing to Mexico and the ‘Tequila
effect’ countries, between 1990 and 1994 the lending boom in Mexico 116%. In Thailand
the lending boom was significantly larger for finance and securities companies was
133%. By 1997, non-performing loans of local banks in Thailand were 15%. Asset
the irreversible surge in the share of non-performing loans (Corestti et al., 1998).
public debit (p. 30), which is analogues of what had happened in Thailand, and Argentina
banking system. In 1999 the per capita growth rate in Thailand 3.33%, Mexico 1.737%
and Argentina was -4.66%, by contrast to 1997, in Mexico was 3.38%, Thailand 4.8%
and Argentina 4.18%. This indicates the economy still staggering in theses nations.
the unbalance between debit and current account balances, which might indicate financial
portfolio equities. Hence, the IMF reforms were in process in these nations and the real
problem was not addressed. For example, economic infrastructure, technology, education,
health, among many things that under developing countries required before the economy
can speed up or implemented correctly. The following are summary for theses countries
problems:
• Argentina problem started well before the 2001 financial crisis. The government
spending at state and federal levels has increased from 38.9 percent of gross
domestic product to 49.4% since 1997. Hence, IMF introduced reforms and
financial assistance might work well if Argentina adapts feasible macroeconomic
strategy. The Argentine economy has performed poorly since 1995, growing at an
annual rate of 1 percent per capita on average. There are two reasons for that poor
performance. Argentina has one of the most regulated labor markets in the world.
Those rules make it difficult and costly for employers to dismiss workers, so
companies don't hire workers in the first place. Not surprisingly, the rate of
unemployment in Argentina has hovered around 15 percent since 1995. The rate
of underemployment (the percentage of the labor force working less than 35 hours
per week but wishing to work more) is also around 15%.
• Thailand problem was prior to 1997 financial crisis, for example external
developments problem, and weakness in financial and corporate systems. The
external imbalances were a reflection both of strong private capital inflows and of
high domestic private investment rates, and were exacerbated, prior to the crisis,
by appreciation of the U.S. dollar to which the currencies of the countries
concerned were formally or informally pegged.

• By 1982, Mexico had accumulated a US$8 billion backlog in payments on its
external public debt and faced the prospect of another US$14 billion
accumulating over the next three years (Cato Institute, 2001).
The global financial crisis in Asia and South America; during the 1990s the lending
boom in Thailand was 58% comparing to Mexico and the ‘Tequila effect’ countries,
between 1990 and 1994 the lending boom in Mexico 116%. In Thailand the lending
boom was significantly larger for finance and securities companies was (133%). By 1997,
non-performing loans of local banks in Thailand were 15%. Asset deflation and the sharp
drop in the value of the collateral especially real estate triggered the irreversible surge in
the share of non-performing loans (p. 28).
banking system.
In 1999 the per capita growth rate in Thailand was 3.33%, in Mexico was 1.737% and
Argentina was -4.66%, by contrast to 1997, Mexico was 3.38%, Thailand was 4.8% and
Argentina was 4.18%. This indicates the economy still staggering in theses nations.
Reference to the financial crisis and the contagion effects, during the 1990s the
lending boom in Thailand was 58% comparing to Mexico and the ‘Tequila effect’
countries between 1990 and 1994 the lending boom in Mexico 116%. In Thailand the
lending boom was significantly larger for finance and securities companies was 133%.
By 1997, non-performing loans of local banks in Thailand were 15%. Asset deflation and
the sharp drop in the value of the collateral especially real estate triggered the irreversible
surge in the share of non-performing loans (p. 30).
banking system. In 1999 the per capita growth rate in Thailand 3.33%, Mexico 1.737%
and Argentina -4.66%, by contrast to 1997, Mexico 3.38%, Thailand 4.8% and Argentina
4.18%. This indicates the economy still staggering in theses nations.
Therefore, these countries total debit, for example in Thailand in 1997 was $109669
Moral hazard in financial institutions as explained by Michel Chossudovsky
professor of economics, at University of Ottawa: The appropriation of global wealth
through this manipulation of market forces is routinely supported by the IMF's lethal
macro-economic interventions which act almost concurrently in ruthlessly disrupting
national economies all over the World.. In Korea, Indonesia and Thailand, institutional
speculators pillaged the vaults of the central banks while the monetary authorities sought
in vain to prop up their ailing currencies. World's largest merchant banks including:
Lehman Brothers; Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg
Dillon Read. The World's largest money managers set countries on fire and are then
called in as firemen under the IMF rescue plan to extinguish the blaze. They ultimately
decide which enterprises are to be closed down and which are to be auctioned off to
foreign investors at bargain prices.

The IMF Bailouts funds:
• Under repeated speculative assaults, Asian central banks had entered into multi-
billion dollar contracts (in the forward foreign exchange market) in a vain attempt
to protect their currency. With the total depletion of their hard currency reserves,
the monetary authorities were forced to borrow large amounts of money under the
IMF bailout agreement.
• Following a scheme devised during the Mexican crisis of 1994-95, the bailout
money, however, is not intended "to rescue the country"; in fact the money never
entered Korea, Thailand or Indonesia; it was earmarked to reimburse the
"institutional speculators", to ensure that they would be able to collect their multi-
billion dollar loot. In turn, the Asian tigers have being tamed by their financial
masters. Transformed into lame ducks-- they have been "locked up" into servicing
these massive dollar denominated debts well into the third millennium.
• To finance these multi-billion dollar operations, only a small portion of the
money comes from IMF resources: starting with the Mexican 1995 bail-out, G7
countries including the US Treasury were called upon to make large lump-sum
contributions to these IMF sponsored rescue operations leading to significant
hikes in the levels of public debt. Yet in an ironic twist, the issuing of US public
debt to finance the bailouts is underwritten and guaranteed by the same group of
Wall Street merchant banks involved in the speculative assaults.
• In other words, those who guarantee the issuing of public debt (to finance the
bailout) are those who will ultimately appropriate the loot e.g. as creditors of
Korea or Thailand such as they are the ultimate recipients of the bailout money
(which essentially constitutes a "safety net" for the institutional speculator). The
vast amounts of money granted under the rescue packages are intended to enable
the Asian countries meet their debt obligations with those same financial
institutions; which contributed to precipitating the breakdown of their national
currencies in the first place. As a result of this vicious circle, a handful of
commercial banks and brokerage houses have enriched themselves beyond
bounds; they have also increased their stranglehold over governments and
politicians around the World.
• Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the
"financial environment" in which the global banks and money managers wage
their speculative raids. The global banks are craving for access to inside
information. Successful speculative attacks require the concurrent implementation
on their behalf of "strong economic medicine" under the IMF bailout agreements.
The "big six" Wall Street commercial banks (including Chase, Bank America,
Citicorp and J. P. Morgan) and the "big five" merchant banks (Goldman Sachs,
Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted
on the clauses to be included in the bailout agreements. In the case of Korea's
short-term debt, Wall Street's largest financial institutions were called in on
Christmas Eve (24 December 1997), for high level talks at the Federal Reserve
Bank of New York.14 (Chossudovsky, 2003)
There is no doubt maquiladoras are an important part of Mexico's international
trade picture. Year in and year out, maquila plants are responsible for more than 40% of
Mexico's exports. Over the years, with or without NAFTA, the maquiladora industry has
grown substantially. During the five years prior to NAFTA, maquiladora employment
grew 47%. But over the first five years after NAFTA, employment growth soared 86%.
This growth was not simply a matter of existing plants taking on more workers but of
rapid expansion in the number of plants. The 1,789 in-bond plants at the end of 1990
grew to 2,143 at the end of 1993—just before NAFTA—and to 3,703 by the end of 2000.
The acceleration of foreign direct investment under NAFTA also contributed to the
creation of more than half-million new employment opportunities in the U.S.–Mexico
border region. For example, NAFTA allows U.S.–Mexican production-sharing operations
in the maquiladora mode but without the maquiladora program. In any case, if
maquiladora production and trade were linked to NAFTA, their importance for modeling
NAFTA's impacts would be markedly different than if NAFTA did not influence a large
portion of U.S.–Mexico trade. Therefore, globalization would not eliminate the
advantages of NAFTA since every country would be facing the same conditions. For
example, if maquiladora activity is not affected by NAFTA. On the other hand, NAFTA
may have encouraged maquiladora expansion by eliminating all Mexican programs that
favored specific industries. NAFTA also eliminated quotas, which especially impacted
the textile industry. NAFTA limits on maquiladora domestic sales, which affects the
Mexico national economy. But in 2001 the NAFTA limit on maquiladora domestic sales
was totally relaxed so that, if they so desire, maquiladoras are now allowed to sell 100
percent of their production domestically. Moreover, NAFTA also liberalized trade and
investment in the textiles and apparel sector —the maquiladora industry’s second-largest
employer. Moreover, local-content rules in Mexico’s automotive sector were relaxed to
allow treatment of maquiladoras as national suppliers for purposes of complying with

local-content requirements. Finally, prior to NAFTA, maquiladora goods entering the
United States were assessed duties on the part of the good not of U.S. origin. With
NAFTA, the value added to maquiladora output in Mexico, along with U.S.-origin inputs,
is now typically excluded from duties (Federal Reserve Bank of Dallas, 2002). The
following are the benefits of NAFTA, MAQUILADORA and MAQUILA programs as
follow:
• The growth rate of U.S. industrial production. Maquiladoras can be seen as part of
the U.S. industrial production process: When production grows faster,
maquiladora employment goes up in the same year. The effect is not only positive
but also relatively quick. Rising manufacturing activity in the United States
quickly results in new orders for the maquiladoras.
• Environmental restrictions may have created another disincentive to operate under
the maquiladora program. In some cases, waste-handling and treatment
regulations were stricter for maquiladoras than for other Mexican plants making
the same products and exporting to the United States. Manufacturing firms' ability
to obtain duty-free benefits under NAFTA without additional cost or
environmental restrictions—which maquila industry membership would impose—
could have encouraged such firms to operate outside the maquiladora program
post-NAFTA.
• NAFTA also eliminated quotas, which especially impacted the textile industry.
With no constraints on the amount of textiles that could be exported back to the
United States, textile firms may have had an incentive to construct maquila
operations in Mexico. Many observers have concluded that NAFTA's treatment of

the textile/apparel sector has significantly affected the maquila growth in that
industry.
• The maquiladora employment fluctuations are Mexican-to-U.S. and Mexican-to-
Asian manufacturing wage ratios. While the relationship between U.S. industrial
production growth and maquiladora growth is positive, the relationship between
these wage ratios and maquiladora growth is negative. In other words, when
Mexican wages increase relative to foreign wages, maquila employment growth
declines (Federal Reserve Bank of Dallas).
The impact of globalization on the flow of labor within Mexico and the affect of
Maquiladora and Maquila programs, first the Mexican GDP growth rate for the same
period 1989 was 1.3% and in 1991 4.2% and in 1993 2% and in 1994 (4.5%) and in1995
-6.2%, in 1996 5.1%, in 1997 6.8%, in 1998 (4.9%) and declining until finally in 2003
1.5%. This indicated that Mexico economic growth declined during the recovery period
(1996/97). Since the GDP in 1993 was 2% and the world average was 3.3% indicating
that financial crisis on the horizon and Mexico slow growth might also contributes to the
reasoning of crisis on the horizon. Furthermore, in the pre-tequila period, imports and
exports were the most dynamic components of GDP.
The rate of growth of exports excluding Maquiladora in era between (1989-1994) was
$168,479 millions and in the era of (1989-1994) including maquiladora was $277,534
millions; thus the difference is $109,055 millions and this different could be contributed
to the maquiladora affects. In the era of (1995-2000) export excluding maquiladora was
$395,531 and export including the maquiladora $706,191millions and the difference is
$310,660 millions and could also be contributed to the maquiladora programs. On the
other hand, imports excluding maquiladora in the era of (1989-1994) were $148,048 and
import including maquiladora $277,534 millions and the difference is $129,486; this also
could be attributed to the maquiladora programs. In the era of (1995-2000) the imports
excluding maquiladora $395,511 millions and including maquiladora $706,101 and the
difference is $310,590 millions and this also contributed to the maquiladora programs.
Hence, the total of the maquiladora programs form 1989 to 2000 in export sector is
$697,243 millions and the imports for the same period were $440,036. Therefor, the
maquiladora has positive affect on Mexico trade sector. Thus, this sharp rise in the
growth rate of imports reflects the effect of the appreciation of the real exchange rate that
occurred prior to devaluation at the end of 1994 and NAFTA programs played a big role
in both export and import (inventories import and re-export). Moreover, the tequila crises
was sparked by the announcement of a 15% nominal devaluation in December 1994, and
ended with a depreciation of the exchange rate of 43% by March 1995. In those years,
there was a rapid growth in imports and exports, which indicates an imbalance of trade
and economic difficulty. During the tequila crises there was an increase in the growth rate
of exports accompanied by a decrease in imports. Both tendencies certainly helped to
cushion the fall of GDP in 1995. Thus, there is no doubt maquiladoras are an important
part of Mexico's international trade picture. Year in and year out, Maquila plants are
responsible for more than 40% of Mexico's exports. Over the years, with or without
NAFTA, the maquiladora industry has grown substantially. During the five years prior to
NAFTA, maquiladora employment grew 47%. But over the first five years after NAFTA,
employment growth soared 86%. This growth was not simply a matter of existing plants
taking on more workers but of rapid expansion in the number of plants. The 1,789 in-
bond plants at the end of 1990 grew to 2,143 at the end of 1993—just before NAFTA—
and to 3,703 by the end of 2000. The acceleration of foreign direct investment under
NAFTA also contributed to the creation of more than half-million new employment
opportunities in the U.S.–Mexico border region. For example, NAFTA allows U.S.–
Mexican production-sharing operations in the maquiladora mode but without the
maquiladora program. In any case, if maquiladora production and trade were linked to
NAFTA, their importance for modeling NAFTA's impacts would be markedly different
than if NAFTA did not influence a large portion of U.S.–Mexico trade. Therefore,
globalization would not eliminate the advantages of NAFTA since every country would
be facing the same conditions. For example, if maquiladora activity is not affected by
NAFTA. On the other hand, NAFTA may have encouraged maquiladora expansion by
eliminating all Mexican programs that favored specific industries. NAFTA also
eliminated quotas, which especially impacted the textile industry. NAFTA limits on
Maquiladora domestic sales, which affects the Mexico national economy. But in 2001 the
NAFTA limit on Maquiladora domestic sales was totally relaxed so that, if they so desire,
Maquiladoras are now allowed to sell 100 percent of their production domestically.
Moreover, NAFTA also liberalized trade and investment in the textiles and apparel sector
—the Maquiladora industry’s second-largest employer. Moreover, local-content rules in
Mexico’s automotive sector were relaxed to allow treatment of Maquiladoras as national
suppliers for purposes of complying with local-content requirements. Finally, prior to
NAFTA, Maquiladora goods entering the United States were assessed duties on the part
of the good not of U.S. origin. With NAFTA, the value added to Maquiladora output in
Mexico, along with U.S.-origin inputs, is now typically excluded from duties (Federal
Reserve Bank of Dallas, 2002).
Foreign firms paying wage according to the study Making The Invisible Visible: A Study
of Maquila Workers in Mexico-2000, in Matamoros, across from Brownsville, Texas, a
family of four needs 193.86 pesos a day to reach a sustainable living wage. Based on pay
slips collected from a number of Maquiladora workers, a majority takes home less than
55.55 pesos (approximately US$6.00) a day, which is 28.6% of what a family of four
people, needs to meet its basic needs. One minimum wage salary in Matamoros provides
only 19.6% of what a family of four needs to earn (Maquila Workers, 2003).
Moreover, the impact of Maquiladora program's on labor welfare in Mexico. The
Mexican government has long demonstrated a persistent pattern of failure to protect the
rights of its female manual laborers during Mexico’s struggle to become an industrialized
nation. The Mexican government has allowed foreign investment and the quest for
economic stability to take precedence over the well-being of its own citizens who work in
the Mexican Maquiladora factories. As a result, female Maquiladora has endured
discrimination and marginlization. The maquiladora factories are havens for foreign
investment in Northern Mexico because labor is cheap and plentiful, especially female
labor workers. A direct cause of this is the Mexican government’s willingness to let
women remain the cheapest form of labor by allowing foreign investors to circumvent the
national labor laws that would increase costs. This willingness to look the other way is
compounded by the ineffective prophylactic obligations of the North American Free
Trade Agreement (NAFTA) and its labor side agreement, the North American Agreement
on Labor Cooperation (NAALC). The trade agreements fail to fully address the needs and
concerns of female maquiladora workers and fall short of enforcing Mexico’s national
labor laws. “Many critics argue that the maquiladora program is transforming Mexico
into a ‘maquiladora country’ rather than developing a strong Mexican industrial base that
will sustain Mexico’s growth into the future, and that maquiladoras are failing to provide
the technology transfer necessary to develop Mexico’s own national industries.” “Further,
the critics contend, the maquiladora industry is changing Mexico’s value system and
culture and thus profoundly affecting Mexico’s national identity (Nesl Journal, 2002).
Furthermore, the international movements of labor and the issue of remittances; the
international movement of labor benefit the recipient countries by means of sending
money from the country where they work to their home country and this considered as
surpluses to the country current account. For example, countries in the Middle East desire
to employ foreign domestic workers e.g. Saudi Arabia, Qatar, Kuwait, and the U.A.E.
They first preferred Arabs, then Muslims, and if there were further openings workers of
other religions. Violations of basic human rights, abuse, harassment and exploitation are
more common in countries of the Middle East than in countries of Europe or East Asia.
Reasons for this situation may be seen in special Socio Political structures, cultural
orientations, and lack of familiarity with core labor standards or the lack of labor
standards. For example, domestic servants working in households in these countries
encounter treatment ranging from hostility, racism, or indifference to love and affection.
the direct foreign investment benefited the recipient country and how international
movement of labor benefit the recipient country. In this case I have chosen Sudan as an
example. According to Stalker (1994) Sudan sent large numbers of emigrants overseas, in
total about 500 thousands workers were abroad including two thirds of the country’s
technical and professional workers. The ILO in 1985 estimated the number to be around
500,000, which was 60% of the total national stock of skilled workers. According to the
research the total number of the Sudanese emigrants was 1,764,000 during the period
from 1978 to 1991. Total Sudanese emigrants were in Saudi Arabia was (48.3% and
40%) in 1990 and 1996 respectively the labor market policy of Saudi Arabia since the
early 1970 gave priority to Arab applicants for work permits, as the rapid economic
growth in the country led to severe shortages in labor (Estuarine Research Federation,
2002).
The positive aspects of emigration include remittances, high tax obligations, and
experience and skills gained. Emigrant families are more likely to improve their
dwellings, own assets, and own durable consumer goods.
Emigration policy recommendations include a) counting emigrants in fertility studies, b)
programs to tax the income of emigrants' wives, c) educational policies for the children of
returning emigrants, d) investment projects directed toward emigrant women, f) media
campaigns to inform and acculturate emigrants, g) family planning programs for
emigrants, and making use of emigrants to fund necessary commodities and exports.
Another impact of having Sudanese immigrate legally or illegally to the Saudi Arabia and
the negative effects on the Sudan emigration has led to the loss of a large number of
skilled personnel. This has inflicted a heavy cost on the economy representing a huge loss
of the country’s investment in human capital. The compensation for this loss of skilled
labor has been the remittances that Sudanese workers abroad have sent back to their
families. However, there is little evidence that remittances have benefited lower-income
households. According to the results of the 1996 Migration and Labor Force Survey, 90%
of all remittances were sent back by the 62% of emigrants with a secondary school
education or higher. This statistic suggests that remittances are likely to have had a
disequalizing impact on the distribution of income within Sudan.
In addition to receiving a small share of remittances, low-income households are
adversely affected by the loss of emigrant labor. For example, agricultural households
first report mainly a labor shortage as a result of emigration of a household member
(Estuarine Research Federation, 2002).
Eventually the main impact is felt through the constraint. Eventually the main impact is
felt through the constraint placed on cultivating land and the ensuing reduction of
production. About 86 per cent of agricultural households reported this constraint as a
problem that was attributable to emigration. Sudan The share of industry in GDP fell
continuously from the mid 1980s until the mid 1990s. But after the mid 1990s, industry
began to grow. Most of this growth was fuelled by the oil industry and foreign direct
investment and took place in large urban centers such as Khartoum and Port Sudan.
Between 1998 and 2001, industry grew by 10 per cent per year (World Bank, 2003).
Finally, globalization can also impact environmental quality in less obvious ways.
Openness to trade, which encourages countries to specialize in producing the goods for
which they have a comparative advantage, can alter the composition of a country's
output. The effects on pollution are ambiguous. Foreign direct investment can introduce
more up-to-date and often cleaner production techniques in place of older, less
environmentally friendly ones. As is the case with globalization and the environment,
conflicting forces make the relationship between globalization and child labor complex. A
developing economy that opens itself to investment and trade may be expanding its
opportunities for, and the productivity of, child labor. Other things equal, this effect
would increase the incidence of child labor, however regrettable that practice may be.
Acting in the opposite direction, though—analogous to the case of environmental quality
—is an "income effect." Poor households that see their real incomes rise through trade
may have less need to rely on the labor of their children (MAQUILA PORTAL, 2004).
Hence, the issue that has become known as “globalization,” which has played out in this
country around clashes over the North America Free Trade Agreement (NAFTA), the
World Trade Organization (WTO), and most recently trade status for China, is not just
about trade. Corporations are not only moving goods across borders—they are also
moving capital, factories, and jobs. The fight is not just about tariffs but all kinds of laws
protecting labor, defending the environment. Globalization is also threatening many
useful public services with private corporations demanding the right to obtain Social
Security, schools, airports, prisons, transit systems—and even our drinking water. In the
fight around NAFTA we were told by many “friends of labor” free trade was a win-win
situation. Economic growth would mean increased prosperity for American, Canadian,
and Mexican workers alike. The result has been just the opposite. While a new, thin layer
of rich has developed in all three countries around NAFTA workers and farmers in all
three have taken a beating. The impact on U.S. workers has been far greater than the
several hundred thousand jobs that have been directly lost to “free trade.” The mere threat
by bosses to relocate jobs has had a chilling effect on labor relations. Workers displaced
by job movement have taken a cut in wages and benefits while most other workers, wary
of relocation threats, have settled for stagnant wages—even in the midst of what is
supposed to be unprecedented prosperity. It is important for U.S. workers to sort out who
are our allies and who are our adversaries in the globalization struggle. Our enemy is not
the working people of China, or Mexico, or any place else. We're in a fight with the
multinational corporations—the biggest of which are based in our country—and the
governments and politicians who do their bidding. We must be wary of some who try to
latch on to the fight against globalization to promote a more sinister agenda. We should
soundly reject those appeals in no uncertain terms. The bottom line is that if globalization
prevails the living standards of working people everywhere will be driven down to the
lowest level anywhere. The only effective defense is to promote workers standards
everywhere through organization and solidarity. Our allies are the workers of the world.
We help ourselves when we assist them. We also have important allies in the
environmental movement who correctly view globalization as a monster threat to our
planet's environment. The U.S. labor movement has made great progress in understanding
globalization and taking initiatives to fight it. The struggle will continue (Kclabor, 2004).
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The Role of The IMF in 1997 Global Financial Crises

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Global Financial Crises 1

Running head: GLOBAL FINANCIAL CRISES

Washington State University

Business school, the Center For Entrepreneurial Studies

April 29th 2005

The Outline for Field Project Report

trade and foreign investment.

excessive government borrowing, or too much consumption of import. Moreover, the

attempt to earn a profit before the contract settles.

MAQUILA, MAQUILADORA and NAFTA programs.

on imports, and other trade measures in these countries and regions.

examine the processes by which globalization impacts an individual country's movement

of labor and standard of living based on my consideration and perspectives on

globalization and finally an assessment on the implications, and consequences of

investment on the host country.

Washington State University

April 29th 2005

host country and/or regional.

& Pesenti, & Roubini, 1998).

savings and boom in private consumption (Corsetti, et al, 1998).

existed before the actual Mexican crisis took place.

was $65214 millions.

Current Account Balance

obligations. Today, a large percentage of Mexico's reserves are borrowed monies, an

extremely precarious situation, even by IMF standards (p. 18).

Furthermore, measure of the adequacy of foreign exchange reserves will be illustrated by

Mexico's Exchange Rate

expansionary monetary policy (reduce interest rates and raise income).

of an economy in one-year. Mexico GNP in [1989-$198194 billions] and was growing

exponentially up to [1994-$407,764 billions] and in 1995 dropped to $272,877 billions.

the same period was [1989-1.3%], [1991-4.2%], [1993-2%], [1994-4.5%], [1995 -

GDP Grow th Rates

and eventually increased in [1992 -$5,365 millions], in [1993-$14,297 millions], in

[1994- $4521millions], and decreased in [1995-$520 millions] and eventually increased

in [1996- $3,922 millions] and in [1999-$1,129 millions].

This indicates that investors were attracted to invest in Mexico up to 1993

Mexico; it increased from [$520 millions-1995] to [$1,129 millions] in 1999. This

Foreign Direct Investm ent

investment and consequently will create havoc and financial crisis.

Argentina’s Portfolio equity in the same period, in [1989-$8 billions], in [1990-$13

billions], in [1992-$392 millions], [1993-$5,529 millions], in [1994-$1,205 millions] and

deficit and negative reserves.

$135,150 billions], [1993-$251,660 billions], [1994-$254,012 billions], in [1995-

healthy in [1994-$254,012 billions] and then deteriorated in the following years up to

might be the consequences, which will lower the aggregate output.

Argentina's Exchange Rate

[2003-U$/2.95]. Thus, this indicates a high inflation in Argentina economy. Argentina’s

[2002-$-81 millions]. As portfolio equity increases the foreign direct investment

situation was improving.

Current Account Balance

incentive-compatible deposit insurance schemes, insufficient expertise in the regulatory

practices, and non-market criteria of credit allocation. Coressetti, et al (1998) indicated

of 1997 may have also played a role in participating the crisis.”

Current Account Balance

millions], [1994-$17,122 million], in [1995-$39,681 millions] and in [1997-$7568

economies) and in Thailand was deficit (financial institutions corruption).

8.09%], [1996-%10.75], [1997-10.75%] and finally in [2003-3.76%]. The Thai real

interest rate were in [1989-5.8%] and in [1990-8.2%], [1994-5.4%], [1997-8.9%], and

in both Treasury bill and real interest rate.

investment were [1989-$1,176-millions] and in [1990-$449 millions] and foreign

investment were [1993-$2,444 millions], [1993-$3,117 millions] and foreign investment

[1993-$1,804 millions] in [1994 -$-538 millions] in [1994-$1,336 millions] and in [1996