s decreases by 40 percent (Dornbusch & Fischer, 1986).
In July 1986, the International Monetary Fund (IMF) agreed to provide additional credit to Mexico in the amount that the country would lose as a consequence of falling world crude oil prices. This agreement by the IMF was for a period of 18 months extending through the end of 1987. Simultaneously, Mexico agreed to join the GATT (General Agreement on Tariffs and Trade). Joining the GATT committed Mexico to the implementation of tariff reductions and to the introduction of policies that would lead a more open economy (Dornbusch & Fischer, 1986).
In the 1990s, Mexico's political and economic leadership found that, frequently, the world simply does not work as economists postulate that it will. Mancur Olson (1996), writing in the Journal of Economic Perspectives, defined the economic logic that must underlie the initiatives of government in efforts to create and effective market economy. Olson (1996), however, possessed the acumen to point-out that economic logic is not the only logic that is at work in any country or globally, and that if social logic does not also underlie such initiatives they likely will stumble at best and fail at worst. Within the context of Olson's line of reasoning, Paul Krugman (1995), writing in Foreign Affairs, observed that:
The world appeared to be at the start of a new era in international capitalism in 1990, as communism was defunct and most of the world's developing nations seemed committed to free markets as the way to economic development. Investment poured into these nations, allowing their leaders to pursue economic reforms. But the crisis in Mexico has pointed out some shortcomings in the so-called "Washington consensus." Excessive optimism led to excessive speculation for which Mexico was not ready, and the attack on the peso ensued. As a result some retrenchment in emerging nations for the rest of the decade can be expected (p. 30)....