MEXICO'S EXPERIENCE AS AN EMERGING MARKET
This research examines Mexico's experience as an emerging market. The concept of an emerging market is addressed in the following discussion. Mexico's experience as an emerging market then is described and analyzed.
The contemporary concept of an emerging market can be traced the beginnings to the debt crisis that plagued less developed countries (LDCs) in the early-1980s (Making 66). The process of rescheduling leftover loans through loan-swapping transactions gradually progressed to cash-trades between the countries and the international banks involved. This debt-trading market entered its second phase of development when borrowing countries themselves became the main buyers of debt-for-equity swaps in 1984. By 1990, traders had succeeded in establishing the Emerging Markets Traders Association.
The United States government eventually joined the bandwagon and negotiated the Brady deal to bail-out and prop-up the Mexican economy (Market 67). This action persuaded international investors that Mexico would reform the country's economic policies, and that other LDCs would negotiate deals similar to the Brady deal with Mexico and, in turn, reform their economies. An important concept in the Brady deal with Mexico was the transformation of loan paper (difficult to trade) into bonds (easy to trade).
International investors began to seek out economies that would offer opportunities as emerging markets (Market 67). By the end of 1993, Brady bonds had become the mainstay of emerging-markets trading and investing. The bonds, usually dollar-denominated, have maturities of 25 or 30 years and are issued in blocks of $5 million or more. The bonds are available either as a fixed-rate "par" bond (in which the principal is equal to the original value of the loan but bears a below-market coupon), or as a floating-rate "discount" bond (deeply discounted from the loan's original value but ca...