The international Debt Crisis

One viewpoint, for example, is that more often than not negotiations between creditor banks and debtor countries have emphasized incentive effects of immediate debt relief. This incentive/relief analysis states that debt reduction would be in the best interest of all parties involved, as the gains from the adjustment effort promoted by immediate relief would outweigh the costs of reducing the face value of the debt. This perspective suggests that offering relief to the debtors can improve the value of creditors claims and enhance repayment prospects. Another viewpoint highlights the ability of governments and international agencies to regulate and manage international financial exchanges. Still another viewpoint, which has become increasingly

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operation. Within a few days of Mexico's announcement, the United States sent $2 billion in prepayments for future Mexican exports. The major creditor banks agreed to postpone debt service fees for several months while Mexico reorganized its finances. The United States convinced a commercial banking consortium to extend an additional $1 billion in emergency debt relief to Mexico. Finally, the World Bank and IMF renegotiated Mexico's debt service schedules for a longer-term arrangement. In exchange for nearly $4 billion in IMF credits, the Mexican government agreed to impose a number of domestic economic policies pre-approved by the international agency. These policies comprised various austerity measures that focused on reducing the budget deficit, curtailing public borrowing, eliminating public works projects, and slashing social services, welfare and even public education programs (Wesson, 1988, p. 53). The austerity program was so strict that Mexico quickly achieved a surplus current account balance that was used to pay off its debt. Mexico went from a $7 billion current account deficit in 1982 at the height of the crisis to a $5 billion surplus the following year. The surplus, of course, was largely extracted to pay internat
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Approximate Word count = 7578
Approximate Pages = 30 (250 words per page)

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